Science & Tech

Expert reveals exactly what you should do if you win tonight's $2bn Powerball jackpot

Expert reveals exactly what you should do if you win tonight's $2bn Powerball jackpot
Powerball winner reveals what won't change after you win the $1.6 billion …

The biggest lottery jackpot ever is up for grabs in the US tonight, after the Powerball prize rolled over to an astonishing $1.9bn.

The previous high for the 45-state lottery was $1.58bn, a world-record. Tonight’s is even bigger - but even if you win, your worries aren’t quite over.

In fact, there’s actually a major decision to make. You can choose to take a US lottery payout in two different ways.

The first option is to take a lump sum. The catch? It’s significantly less than the advertized prize, about $929m before taxes.

The second option is to take the full amount, released in annual payments for the next 30 years.

Received wisdom is that a bird in the hand is worth two in the bush - and getting a lump sum to invest however you please is the best option.

But lottery winnings expert Victor Matheson - an economics and accounting professor at College of the Holy Cross - begs to differ.

He explained to Fortune, in a fascinating interview, why he suggests taking the annual payments.

By going for yearly payouts, the lottery will take the bulk of the money you just won and invest it in a very conservative annuity, which will earn about 4.5%.

That’s a higher rate than you’d get yourself, and your payments will come from that fund.

“So by taking the annuity, it is basically like having the lottery put your money into a high-yield savings account in the first place,” he told the site.

Another key reason to go for the annual payments is to avoid paying the 37% federal tax bill on the full lump sum.

He said: “You get to defer your taxes with the annuity in a way, because you don’t have to pay all of the taxes up front like you do if you take a lump sum and go put it in a high-yield savings account yourself. If you take the money now in a lump sum, you get the tax hit up front.

“From a purely financial standpoint, the advantage of taking the annuity is you don’t have to pay taxes on winnings until you actually receive the money. You’re getting a bunch of money that’s earning money for you and the taxes are deferred. It’s not like it’s tax-free, but you don’t have to pay taxes on that final annuity payment for 30 years.”

So there’s the advice - now all you have to do is win it.

Bad news: the odds are terrible.

Good luck!

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