1. Consult a Tax Professional Before You Claim the Prize.
You have a choice between taking the payment as an annuity or as a lump sum. If you take the annuity, you will pay taxes as you receive your payments over time. With the annuity, the taxes will be paid on the entire amount when you receive it. The other consideration is what you could earn by investing the money if you took it as a lump sum. A tax professional can help you run the numbers before you decide.
2. Pay Off Your Debts.
Your rate of return is equal to the interest rate on the debt. If you are currently carrying credit card debt at 16%, paying off that debt will yield a 16% return on your money. You are not likely to find that kind of return anywhere else in today’s market.
3. Don’t Buy a Porsche – at Least Not Right Away.
Everyone has heard the stories of lottery winners who that ended up bankrupt. For most, it was simply a matter of not being prepared mentally for managing their new money. The best advice is to wait several months before making any splurge purchases. Those months will give you time to assemble a team of advisors, set up a budget and make sure the money will continue to benefit you and your family for many years; then, and only then, should you consider splurging on yourself whether that is in the form of a luxury car, new house or vacation.
For more information on helpful tips to consider if you've won the lottery, check out our full article or feel free to contact our office at (763) 420-5087 with any questions.