Take a Lump Sum or Stick with Structured Lottery Payments
Monthly Lottery Payments or a Lump Sum? Hmmm?
Winning the lottery is a dream, but as soon as the initial joy has worn off, you’ll soon find out that a few decisions have to be made. Should you take the lump sum offered by the state or go for the 25 to 30-year term structured lottery payments? One’s age, family ties, financial goals and knowledge, risk tolerance, tax consequences significantly contribute to what choice suits a lottery winner. If you choose a lump sum payment “all at once” it will be discounted BEFORE being taxed at the federal and state level. The discounted lump sum payout is based on how much the state lottery program would need to invest in U.S. government securities in order to fund the annuity payments.
Lump Sum Payments are Heavily Discounted
Lump sum payouts are currently discounted between $37 million and $38 million per $100 million in jackpot winnings. Consequently, after federal and state taxes, depending upon the jackpot, you could be looking at a lump sum payout that is almost half of the aggregate (total amount) of the fixed, structured lottery payments option.
There are many great resources about how to best handle your big win. After all, how you choose to receive your money will probably be the biggest decision in your life. Consulting a financial advisor is highly recommended.
4 Pros if You Choose a Long-Term Structured Lottery Payments
Choosing long-term structured lottery payments may be the best option for you for many reasons. Next are four reasons that favor receiving a long-term annuity versus a lump sum payout.
1. The Taxes on Structured Lottery Payments Will be Lower for the First Year
Structured lottery payments from lottery winnings typically span 25 to 30 years. The federal and state governments classify your casino, jackpot or lottery winnings as income just like you’d receive from a job. Furthermore, since the payments are spread out over time, your tax bracket on the first year of the annuity payment should be lower than if you chose a lump sum payout. Even if you sell lottery winnings in the future, you’ll have to consider the tax consequences. The highest amount of tax a single filer would pay in 2022 is 37% for an income equal to or greater than $523,600. Think about that for a moment. That is basically a whopping 40% of your lottery winnings and that is just on the federal side. Additionally, check your state income tax to see what you’d have to pay in your state in aside from the federal tax. You’ll most likely want to set up an Individual Retirement Account (IRA) in addition to other investments. A financial advisor can help you choose your investments wisely. Consult with an accountant regarding the tax implications of your winnings whether you decide to take the lump sum payout, long term annuity or later on decide to sell lottery payments to a third party.
2. Your Lottery Payments are Protected by Law for the Duration of Your Structured Annuity Payout
When you choose to get your casino, jackpot or lottery winnings through structured annuity payments they are protected by the state’s government. This means that despite any economic volatility you’ll always receive your payments. Moreover, these payments are safe, secure and should come on time like clockwork without any issues. If you’re the type of person that craves security and stability, then choosing structured lottery payments would be ideal for you as opposed to taking a lump sum. Still, it’s understandable that some people don’t necessarily “trust the system” and may feel uneasy about depending on the ability of a state to make the future annuity payments for 25 or 30 years. There is always a certain “uncertainty” about the future.
3. Structured Annuity Payments Forces Discipline
It’s not uncommon for casino, jackpot and lottery winners to lose all their lottery winnings within a short period of time. This is due to lack of financial knowledge and impulsive purchases. Monster mansions, extravagant sports cars, huge flat screen TV’s and entertainment systems are great but wasting all your winnings on these items is a huge mistake. OK, well flat screens aren't that expensive, especially if you've won the lottery! In any event, only the mansion may be considered an appreciable asset. The remaining items depreciate over time. On the other hand, choosing to have your casino, jackpot and lottery winnings paid out via structured lottery payments force you to maintain some sense of discipline. They prevent overindulgence and financially irresponsible purchases.
4. If You Choose a Lump Sum Payment or Sell Lottery Payments the Amount You Receive Will be Discounted
As mentioned in the first paragraph, If you choose to receive a lump sum payout it will be discounted before taxes. This is due to the time value of money. Your states’ lottery commission will discount the amount you receive anywhere from 2-5%. This is in addition to the mandatory federal and state taxes that will be subtracted. There are, however, eight states that have no income tax. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Washington have no income tax. New Hampshire still taxes dividend and interest income but will eliminate those taxes by 2024 bringing the total number of states with no income tax to nine. If you live in any of the aforementioned states, then you’ll only have to pay the federal tax.
Pros if You Choose a Lump Sum Payout
Despite the aforementioned benefits, there are also some drawbacks to choosing to receive your casino, jackpot or lottery winnings as a structured annuity payout. Next are four reasons that favor receiving a lump sum payout versus long-term structured lottery payments.
1. You Can Make Large Purchases Outright without a Loan if You Sell Lottery Payments
Not all large expenses are necessarily impulsive or financially irresponsible. College tuition, reliable vehicles, and a beautiful home are all very reasonable to want for you or your family. Unless you really hit it big time, an annual or monthly structured annuity won’t provide you the opportunity to make large purchases without a loan. Alternatively, choosing the lump sum payout option or choosing to sell lottery winnings will. Also, taking out a loan in and of itself seems a bit pointless as you’re creating debt you don’t need. The interest rate on the loan is probably similar to the discount rate you’re being charged to take the lump sum all at once.
2. You Can Settle Your Debts with a Lump Sum Payout if you Sell Lottery Payments
Settling debt is one of the best investments you can make. Regardless of the obvious financial rewards, having no debt offers you a peace of mind that is priceless. Imagine owning your own gorgeous home and a few toys you’ve always wanted without ever owing anyone a dime with the exception of annual property taxes? How about paying for your child’s education without leaving them the burden of having to pay back student loans? Imagine having all your families vehicles paid for. Not having to worry about monthly payments can dramatically reduce your stress level.
3. You Can Invest if You Sell Lottery Payments
A major benefit of getting your casino jackpot or lottery money in a lump sum payment is that you can invest it. Investing is more or less the only way to make sure the value of your money doesn’t decline over time. Although it may appear to be safe by leaving cash in a bank checking or savings account it is actually one of the worst things you can do. Most big banks offer less than a 1% per year return which is less than annual inflation. A casino, jackpot or lottery winner should become familiar with the financial tools available to them including investing in Bonds, Businesses, Certificates of Deposit, Exchange Traded Funds (ETF’s), Mutual Funds, Real Estate, Real Estate Investment Trusts (REIT’s), Small Cap, Mid Cap and Large Cap Stocks and more. A financial advisor can help you come up with an overall plan that diversifies your investments into a portfolio that agrees with your risk tolerance. You can also learn on your own. Buy some books on investment ideas and strategies. Think of it as “going to school”. Although you don’t need be an expert you should become familiar with the financial tools available to you that will both grow and protect your wealth.
4. The Time Value of Money Means that Your Lottery Payments Aren’t Quite as Valuable as You Thought
Money decreases in value over time. Annual inflation and the financial concept known as the time value of money dictate that $1,000 right now is worth more than a $1,000 in the future. Therefore, not having your casino, jackpot or lottery winnings instantly available or “liquid” can be a big drawback. Although the aggregate of your 25 to 30-year annuity payments will be much greater than the lump sum option, you may find yourself asking “What could I have done with that money if I had chosen the lump sum?” “What if an emergency, or a once in a lifetime business opportunity arises?” Most experts agree that if handled correctly, taking the lump sum option is better than choosing the long-term annuity payout. Wise investments over a 25 to 30-year period should be able to surpass the aggregate amount of the 25–30-year annuity. Some people may want access to their money whenever they feel like it plain and simple.
Sell Lottery Payments to a Third Party
Factor Financial’s low cost of business operations and vast network of funding sources allows us to give our customers the most money for annuity, casino, lottery and structured settlement payments. Get a quote today!
Won the Lottery? Grow and Protect Your Fortune
Five Important Tips to Avoid the Common Pitfalls that Commonly Face People that Have Won the Lottery
So you’ve hit the jackpot and won the lottery. Congratulations! With large sums of money comes great responsibility, and to make sure you get to enjoy your lottery winnings for a long time to come it’s important that you make the right decisions. Depending on the lottery many have to choose between getting a lump sum of cash or a structured annuity payout? If you choose the annuity payout initially, will you still be able to sell those annuity payments at a later time?
The emotional period just after you won the lottery can be daunting. I can only assume of course. We’ve all read the stories of lottery millionaires that lost all their money due to poor decision making. But that’s not going to happen to you, because here are five tips on what to do AFTER you’ve won the lottery.
1. Stay Anonymous After You’ve Won the Lottery
If the state where you won the lottery or jackpot allows it, stay anonymous. Most states maintain public records of lottery winnings which is unfortunate. The reason they do so is to prove that the lottery is legitimate and transparent and there is no funny business going on. The state thereby “proves” that there is an actual winner and they’re not just pocketing all the money from ticket sales. The same goes for hitting it big at the casino. Being a pseudo celebrity that is interviewed or visits talk shows may be fun for a little while, but the drawbacks of revealing your identity lasts way longer. Friends and family might start expecting you to buy things for them. Individuals and companies will suddenly knock on your door with “business opportunities”. I mean there are companies and/or people that’ll literally knock on your front door after you’ve won the lottery. Additionally, you’ll become a lawsuit target and may quickly find yourself in a frivolous lawsuit. Lawyers don’t bother suing people with no money. How annoying. Staying anonymous gives you time to think about how to best proceed with your newfound wealth. Keep a low profile.
2. Get Sound Financial Advice After You’ve Won the Lottery
Pretty much every human being on the planet has a plan for what they’ll do when they’ve won the lottery. They’ll buy an airplane, Ferrari, mansion, or go to a tropical island. Before you do anything or buy anything substantial, you should consider consulting with a financial advisor after you’ve won the lottery. An important decision has to be made. Will you choose to receive the money at once or opt for a structured annuity? Both payout options come with a list of benefits and drawbacks that you should learn about. A financial advisor can help your money grow while protecting your wealth with a diversified portfolio of investments. You’ll learn to keep most of your money in appreciating assets like real estate, and low risk large cap or blue chip stocks instead of depreciating assets like automobiles. One of the worst things you can do with your casino or lottery winnings is to let them sit idle in a bank account earning virtually zero interest. Firstly, the Federal Deposit Insurance Corporation (FDIC) only ensures that each depositor is insured to at least $250,000 per insured bank. The same holds true with credit unions. They are insured by the National Credit Union Administration (NCUA). A credit union account is also only insured up to $250,000. Additionally, savings interest rates for most big banks fall below 1%. Although it may seem “safe” it’s not allowing your money to grow as it should. You’ll also need to understand the federal and state tax consequences of your lottery winnings. An accountant can help you understand your tax responsibilities.
3. Stay Busy After You’ve Won the Lottery
I won’t tell you to stay working in some dead end job that you can’t stand if you’ve just won the lottery. If you want to quit go ahead and quit. However, having no routine at all isn’t beneficial. It may only increase the temptation to go on crazy spending sprees or may lead to an unhealthy lifestyle revolving around alcohol and drugs. A better idea may be to work less hours, develop an exercise routine if you don’t already have one, go back to school, or explore a new career or hobby that you’ve always wanted to pursue. Also be leery of new “friends” that suddenly appear after you’ve won the lottery. Don’t be taken advantage of. Protect yourself and your fortune.
4. Use Your Lottery Winnings to Pay Off Debts
One smart financial decision you can make is paying off your debts. It’s one of the best investments you can make. Not owing money to anyone is an amazing feeling and will give you a peace of mind that is invaluable. Pay off your debts before undertaking anything else with your lottery winnings.
5. After You’ve Won the Lottery Take a Finance Class or Read Some Books on Investing
While it’s of highly recommended that you seek financial advice from a professional, it never hurts to take a finance class or read some books on investing after you’ve won the lottery. That way you can understand the basics of the advice you’ve been given and have a better chance of knowing when your money is being mishandled. You’ll also be better able to comprehend the day time financial gurus on CNBC and the like. Learn about annuities, blue chip stocks, bonds, commodities, ETF’s, real estate, real estate investment trusts (REIT’s), small cap stocks, mid cap stocks, large cap stocks, mutual funds and more. Knowledge is power.
Want to Sell Lottery Payments?
Many states allow you to sell lottery payments to a third party in exchange for a lump sum. Check to see if your state allows you to sell lottery payments. Unless you’re financially savvy and have learned how to invest, you should speak to a financial advisor first. The option to sell lottery payments can be a great idea depending upon your situation and your intended use of the funds. Get a quote today!
Sell Lottery Payments with These Five Steps
Sell Lottery Payments - A Brief Guide
Can you sell lottery payments for a lump sum of cash? Who knew hitting the jackpot and winning the lottery would be so stressful? After you won, you may have chosen to receive the long-term annuity payout. If for some reason you've changed your mind, you may be able to sell lottery payments to a third party.
Process to Sell Lottery Payments
These five easy steps below are all it takes to sell lottery payments. The process can take anywhere from 45-90 days, depending upon what county and state you live in. If anyone tells you it can be done sooner don’t believe them. Applicable state disclosures need to be sent and disclosure periods need to be adhered. Additionally, a hearing date must be set.
Get Life Insurance to Sell Life Lottery Payments
Keep in mind that if you're selling life contingent payments then you’ll need to work with the factoring company on securing a life insurance policy in order to protect the transaction in the event of your demise. It may be possible to sell life annuity payments without insurance through what is called self-insurance. However, if one self-insures the transaction, the discount rate will be much higher, meaning less money to you. If possible, you’re usually better off getting life insurance. Your life insurance policy will be collaterally assigned to the investor. For more information about the process of obtaining life insurance please see Sell Life Annuity - Life Insurance.
1. Does Your State Allow It?
You don’t need approval from the casino or lottery where you won your money if you want to sell lottery payments. Casino payments may or may not require that the assignment or sale be filed with the court. The sale or assignment of lottery payments, however, generally requires court approval. Currently 28 states allow you to sell lottery payments. Find out if your state does by going to the website of the casino or lottery you won.
2. Decide How Much Money You Need
The first thing you need to do is figure out how much money you want to receive as your lump sum for lottery payments. You can choose to either sell all payments, or just a portion. Make sure to sell enough payments to accomplish whatever goals you, but not too much whereby you have money just sitting around.
3. Gather Your Documents Showing Your Structured Lottery Payout
The factoring company will want to see documentation showing the annuity payments you’re entitled to. You should scan and save these documents if you haven’t done so already. Then email, fax or mail copies to the factoring company you’ve chosen to buy lottery payments. It’s best to do this AFTER you’ve chosen which company you decide to work with. After all, there is no need for several companies to have a copy of your annuity documents.
4. Sign Contract to Sell Lottery Payments
Factoring companies like Factor Financial buy lottery payments. The amount you receive is based upon the discount rate the factoring company charges you and quite simply what the market is willing to pay for them. Different companies charge different rates.
5. Get Court Approval
In order to sell lottery payments you’ll most likely need the court’s approval. If required, a judge will review the sale of your lottery payments. This is not as big of a deal as it sounds. Generally the factoring company will handle the entire legal process. You simply have to show up at the hearing, which will last no more than a few minutes.
Would You Like to Sell Lottery Payments?
As of the date of this paragraph 28 states allow people to sell their lottery payments. Laws change often so check with your state to see if you're able to assign (sell) your lottery payments. Contact us for a quote. We'll be happy to help.
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Call us today at +1 (781) 242-4000 to speak to one of our account managers. If you prefer, you may fill out the form to the right to get a quote to sell lottery winnings. We'll attempt to contact you as soon as possible.
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