Although lottery jackpots pay winners millions every year, not all of the money generated from ticket sales is paid out to lottery winners. States actually keep a portion of the money — some states’ percentage is as low as $0.11 for every dollar spent on tickets — and put the money toward education, senior care, or use it as un-earmarked cash for general road improvements and unplanned expenses. Lotto winners can choose from a lump sum payout of cash or a long-term fixed annuity, also referred to as a structured settlement.
There are taxes and fees that a specialty finance company can help winners decipher: is it better to receive a lump sum or to wait as annuities increase yearly over a 30 year period? Administrative fees for annuities can put a sizable dent in lotto winnings, and of course the tax bracket that lottery winners find themselves in does have certain taxes for immediate payouts of cash. But many lottery winners discover that spending money up front can actually save them tens of thousands of dollars in interest in the long-term.
A 3% yearly maintenance tax on lottery winnings of $2 million comes to $60,000 every year. It is not surprising, therefore, that the majority of lottery winners report spending their money within the first five years. Taking the time to consult with a finance company to discuss the conversion of structured settlement annuity benefits into a lump sum can be useful, and becoming familiar with taxes and fee structures may help people make the decision to receive lottery winnings in one disbursement, instead of over the course of 30 years.
Sure, the chances of actually winning the lottery are small, but people receive lottery winnings every day, in 44 states across America. They are then faced with major decisions about how to spend their money, whether to invest, and how much they could save on interest by paying off medical bills, credit cards, and auto and school loans. Calculating fees and interest on an annuity settlement versus a lump sum cash payout is important, and investing your money and paying off your debt is a priority that should be discussed with finance experts.
Why play the lottery? It’s fun and it’s harmless, and it allows people to imagine a future where they can pay all their debts, travel, and return to school. Some lottery winners decide to convert their structured settlements into cash, with the intention of returning to school or paying off debt. Having ready cash available to put down a 20% down payment on a property instead of 10%, for example, can save new homeowners thousands in home loans over the course of 30 years. But why take out a loan? Cash settlements could allow lottery winners to receive lottery winnings within less than one month, and to pay for their new homes in cash, up front, without the need to take out a loan.