Published: October 4, 2023, 07:41h.
Last updated: October 4, 2023, 07:41h.
The Powerball jackpot for tonight’s drawing is estimated to be $1.2 billion. If you’re fortunate enough to be the lucky player who ends the 32 consecutive drawings without a jackpot winner, a prominent Chicago-based attorney who specializes in securities litigation and financial matters advises choosing the annuity option.
In an interview with CNBC, Andrew Stoltman, a nationally recognized attorney and founder of Stoltman Law, recommends choosing the annuity option, even though most lottery winners typically opt for a one-time cash payout.
For tonight’s drawing, the $1.2 billion jackpot has an estimated cash value of approximately $551.7 million. Winners can choose between receiving the full value over a 30-year period or a one-time cash distribution. Both prizes are subject to federal and possibly state income taxes.
Virtually everybody who wins the lottery picks the lump sum distribution. I think that’s a mistake,” Stoltman said.
Stoltman explains that most winners don’t have the financial infrastructure to handle such a large sum of money, which often leads to reckless spending.
Financial Mismanagement
Although it’s likely that the winner of tonight’s Powerball jackpot will choose the cash option, recent winners have consistently made that choice for both Powerball and Mega Millions jackpots.
The cash option for tonight’s $551.7 million prize would be reduced by about $204 million due to the federal government’s 37% effective tax rate for the highest income bracket.
After taxes, the winner would be left with approximately $347.6 million before considering state taxes and expenses such as legal or financial consultation.
Stoltman’s belief that many winners go on spending sprees after their big wins is well-documented. In fact, the recent $2.04 billion Powerball winner has already spent millions on real estate.
Edwin Castro, 31, won the $2.04 billion jackpot with a $2 Powerball ticket last November. He chose the one-time cash option of $628.5 million, as California does not impose additional taxes on lottery winnings.
Since receiving the money, Castro has purchased three mansions in California totaling around $76 million. John Lloyd, a certified financial planner, agrees with Stoltman that the annuity option presents less risk for winners.
“Flexibility and control over assets are a really good thing,” Lloyd told CNBC.
Interest Rates Fueling Jackpot
The value of Powerball and Mega Millions jackpots heavily relies on the Federal Reserve’s interest rates, as the annuity is funded through US Treasury bonds. With the Federal Reserve raising interest rates in the past year to combat inflation, the jackpots have been growing faster compared to when rates were near zero.
Currently, the annuitized jackpots offer significantly more value compared to the cash option. If tonight’s winner were to choose the annuity, they would receive an initial payment of approximately $25.2 million, with the following 29 annual payments increasing by 5% each year.