Everyone has dreamed of winning the lottery at some point in their lives, and why not? Winning the lottery can either solve all of your problems or spawn some entirely unforeseen problems of its own. Here are the top five reasons why the lottery system might not be all it is cracked up to be.
1. Taxes on Your Annuity
Right off the bat, you lose 25% of your lottery annuity to federal taxes. As if this is not enough, state taxes can cost you an additional 10%. Some annuities may even have yearly tax fees, costing you even more money.
2. Annual Upkeep Fees
The threat of annual tax fees is only increased when one has to consider annual upkeep fees. Annual fees for your annuity can reach as much as 3% of your total investment. Some annuities charge penalties reach 6 or 7% within the first seven years; meaning that money is lost every year you wait.
3. Subject to Early Withdrawal Fees
Waiting might just be the only thing you can do, as many annuities are specially set up to hit you with early withdrawal fees. If you withdraw the money before a certain length of time, or in some cases before the age of 59½, you will be subject to taxes plus an additional 10% early withdrawal penalty fee.
4. Lottery Annuity Payment Schedule
The most important part of an annuity is the money of course. The Mega Millions starts out with an initial payment followed by 29 annual lottery payments that increase every year by 5%. This means that a typical Mega Millions jackpot of $50 million would start with an initial payment of over $750,000 and future annual payments that would nearly reach $3.1 million dollars.
5. Love and Loss
Despite being entitled to more money than most people see in their entire lives, nearly half of lotto workers continue to work at their old job. Whether they will $500 million or just $1 million, nearly 70% of lotto winners will lose or spend all of their money in five years or less.
Still encouraged to go for the lottery? Many people have bypassed the unnecessary fees associated with annuity settlements by selling lottery payments to trusted companies who will continue to collect the cash after giving you a lump sum. Although you’ll never beat the lottery, at least you can find a way to still come out ahead.
Winning a lottery annuity is often the subject of a great story, but rarely happens in real life, right? The truth is, lottery winners are living and working along side of us; chances are you know one. So why are these hidden millionaires not driving yachts or sipping champagne? Here are three hidden truths that the lotto business doesn’t want you to find out.
To put it mildly, lottery taxes are brutal. The government will instantaneously withhold around 25% of jackpot winnings for federal taxes, plus an additional amount for state taxes too. These heavy taxes significantly cut down on your winnings, which may be why nearly half of lottery winners continue to work even after receiving annuity lottery payments.
Unfortunately the taxes are only the beginning of what can be a lengthy process of fees and restrictions. Many annuities have hidden fees that are enacted once you try to make a withdrawal; if you make a withdrawal within the first five to seven years you may surrender charges of up to 7% of your investment or more. In some cases, withdrawing from particular annuities before the age of 59½ can result in additional taxes plus a 10% early-withdrawal penalty. Just maintaining a variable annuity can cost $20 or $30 per year in maintenance fees — those millions don’t look as attractive as they used to.
Getting money is the only reason people really play the lottery anyways, right? Unfortunately a lump sum lottery payout is not going to happen, so you’ll have to receive yearly payments. Some annuities come with options for payments, including payments over a specified number of years ore payments that continue for as long as you or a spouse are still alive. A lottery annuity, such as the Mega Millions is paid out in one immediate payment followed by 29 annual payments that each increase by 5% every year. While some are happy to sit back and collect, some people want to get cash for annuity payments as quickly as they can to pay bills and come out ahead. In order to get cash for annuity payments, you’ll have to find a specialized buyer who will continue to collect on your annuity while giving you a certain amount of money in a lump sum. Selling your annuity may just be the best way to get the most out of your lottery payout.