MEDIA ADVISORY: If You Win the Powerball Jackpot, Resist Taking the Lump Sum Option
By Janet Lathrop
UNH News Bureau
August 23, 2001
DURHAM, N.H. -- A winner in next Saturday night's Powerball drawing can minimize taxes and make the most of the windfall by taking the prize as an annuity over several years rather than as a lump sum, says Toni Smith, assistant professor of accounting and finance at UNH's Whittemore School of Business and Economics.
"The reason is very simple," Smith says. "If you take it as a lump sum, you pay all the tax on it now and eliminate any planning opportunities you have for saving over the long run." For example, tax rates might go down in the future -- they're on their way down now -- and winners would miss the chance to benefit if they took a lump sum now.
Also, if the winner has any intention of sharing the prize with others, "make it known in advance," Smith suggests. By sharing the ticket with others, she notes, proceeds can be spread over more than one winner to reduce tax liability. Having a strategy before you claim makes sense.
Having outlined the basics, however, Smith notes that "there are really no grand schemes" for the winner to follow except to resist mightily the temptation to fill a grocery bag full of all the cash and throw it up in the air.
"The thing is people want to have it all now," she admits. But if one can rein that impulse in, "you have more chances to save in the future."