A lottery jackpot is a sum of money that’s advertised as the maximum prize you’d receive if the current prize pool were invested in an annuity over decades. It’s a trick to drive ticket sales, and the larger the interest rate is, the higher the amount that annuity can grow to be.
Lottery winnings are taxed at the top federal income tax rate, currently 37% for single filers and married filing jointly. The IRS withholds 24% of the initial jackpot value before it’s remitted to winners. If a winner chooses to receive a lump-sum payout, they’ll pay the rest of their taxes at their ordinary rate.
The biggest mistake lottery winners make is going on a spending spree before they’ve done their homework and hammered out a comprehensive wealth management plan, which should include deciding how they want to receive their winnings and figuring out the financial implications of each option. They also need to consider how their winnings might impact their future plans for retirement and other long-term goals.
Lustig advises lottery players to avoid conventional patterns when selecting their numbers, and instead focus on a range of 100 to 175. That sweet spot is where 70% of jackpots are awarded. “It’s important to think outside the box,” he says, “and not get sucked into picking a sequence of numbers that everyone else is using.” For example, some people use birthdays as lucky numbers and only select those that fall in certain groups. That reduces their odds of winning, he says.