Win the lottery? So did the tax man

Somewhere in New Jersey is a person with a golden ticket, one that has the winning numbers for the estimated $1.13 billion Mega Millions grand prize. But before the lucky winners can think

about lighting cigars with crisp $100 bills, they have a big decision to make: whether to take the lump sum or the annuity payment, which will be spread out for 30 annual payments. It’s a

problem we’d all love to have: deciding how to take the proceeds after winning the lottery. But it’s a big decision, whether it’s a record jackpot or the recent $1.13 billion Mega Millions

prize. (This prize ranks No. 8 among all-time top jackpots.) But how you handle the payout of lottery winnings requires careful consideration and likely the input of experts, such as an

accountant, lawyer and financial planner or wealth management adviser. “As a very famous rapper once said, ‘Mo money, mo problems,’” said John P. Schultz, partner at Genske, Mulder &

Company, an accounting firm in California. “This could not be more true in the case of lottery winnings, as the wealth — and management of that wealth — has not grown slowly so that someone

can learn and grow with it.” He adds that with lottery winnings being sudden and extremely large, people often encounter issues after winning that outweigh the benefits they receive. Here

are four things to consider if your net worth suddenly increases by 10 digits, or even just six figures. 1. EVALUATE PROS AND CONS OF LOTTERY PAYOUT METHODS You can get out a calculator or

use an online tool to crunch some numbers while deciding what is more advantageous for you: a lump-sum payment or an annuity. With a lump sum, the winner receives all the money at once,

after taxes are withheld. With the cash option in the Mega Millions jackpot, the winner would get a cash payout of $537.5 million, or $338.7 million after federal taxes. This can be

attractive for someone who has large debts to pay off, helping them dig out of a financial hole. The lump-sum option also allows the winner to invest the money wisely, which can be

especially valuable for younger people who have more time to earn on their investments and ride out market volatility. An annuity spreads the payments over many years and offers a reliable

and long-term stream of income. If the winner has not been careful with money in the past, or even behaved irresponsibly in financial matters, then the annuity may make more sense, said Dan

Moskowitz, president of Chatham Wealth Management in New Jersey. “Deciding what method to take your winnings is not as simple as running a calculation of the present value of the future

annuity payments and comparing that to the lump sum,” Moskowitz said. 2. ASSESS TAX IMPLICATIONS Before you submit the paperwork for your lump sum or annuity, you need to consider the tax

implications carefully. Cash winnings will be taxed in the year the money is received, noted Charles Shader, a taxation specialist at Facet, a financial planning firm. He gave this example:

If a lump sum of $100 million was received in year one, all dollars earned above $578,125 would be subject to the current top federal marginal tax rate of 37 percent. Dollars below that

threshold would be subject to lower-bracket rates. The result in this scenario would be a tax of more than $36 million, Shader said.