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Winner of record $1.6 billion-plus Mega Millions jackpot should watch out for these pitfalls, experts warn

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The Mega Millions jackpot grew to more than $1.6 billion on Aug. 9, 2023.
Justin Sullivan | Getty Images

There’s finally a winner for the massive Mega Millions jackpot — but the lucky ticketholder may face unexpected pitfalls, experts say.

A single ticket sold in Florida matched all six numbers on Tuesday night, marking the game’s largest prize in history, according to Mega Millions. The winning numbers were 13, 19, 20, 32 and 33, and the gold Mega Ball 14.

After final sales counts, the jackpot is worth $1.602 billion, beating the previous record of $1.537 billion from October 2018.

The lucky winner has two payout choices: a one-time lump sum of $794.2 million or 30 annuitized payments totaling the $1.6 billion-plus. Both options are pre-tax estimates.

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Whether the winner picks the lump sum or annuity payments, both options come with a sizable tax bill, which is one pitfall to consider.

While Florida doesn’t tax lottery winnings, there’s an upfront 24% federal tax withholding that goes to the IRS. If the winner chooses the $794.2 million lump sum, they’ll owe nearly $190.6 million up front. But with the winner hitting the 37% federal income tax bracket, the final bill will likely be millions more.

‘The curse of the lottery is real’

In addition to taxes, the Mega Millions winner will likely encounter other obstacles, experts say.

“Let’s just say the curse of the lottery is real,” said Andrew Stoltmann, a Chicago-based lawyer who has represented several lottery winners.

Let’s just say the curse of the lottery is real.
Andrew Stoltmann
Attorney at Stoltmann Law

Many people playing the lottery don’t have the infrastructure of financial advisors or other professionals they can easily tap for guidance when they win. “And they don’t have the knowledge base to handle a large sum of money,” he said.

Common blunders may include bad investments, overspending and relatives asking for more money, Stoltmann said.

Winning the lottery can be a ‘blessing or a curse’

The winner will also have several estate-planning challenges, according to Warren Racusin, a wealth planning attorney and partner at Lowenstein Sandler.

“When you get a billion and a half dollars, Uncle Sam becomes your 40% partner in that,” he said.

For 2023, the federal estate tax exemption is $12.92 million, or double for married couples filing together. Without changes from Congress, those thresholds will drop by roughly one-half after 2025 when provisions sunset from the Republicans’ 2017 signature tax overhaul.

The top 40% federal estate tax rate may apply to assets above those thresholds, depending on several factors.

Of course, there are a number of planning techniques, which may include certain types of trusts, that can help the lottery winner achieve their legacy goals while minimizing the estate tax bill.

“This is something that can be a blessing or a curse,” Racusin said. “If you handle it right, it can be a blessing.”

Tuesday’s Mega Millions drawing comes roughly three weeks after a single ticket sold in California won Powerball’s $1.08 billion jackpot. That game’s top prize is back down to $170 million, with roughly 1 in 292 million odds of winning the jackpot.

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