Lucky Powerball winning ticket holder lands $400m jackpot, or do they?

Unlike other lotteries around the world, US-based lottery wins can be accepted as either lump sum, or in 30 yearly payments called annuities

A lucky ticket holder in the state of South Carolina has landed the fifth biggest jackpot win in American lottery history after Wednesday night's $400m draw.

The ticket holder selected numbers 7, 10, 22, 32 and 35 with Powerball number 19 to land this incredible prize and to become an instant multimillionaire.

In the four days since Saturday's $317m draw failed to generate a winner, the prize fund had soared to $400m generating yet another bumper payday for one lucky winner, although with American lottery rules regarding payout and taxation, the actual $400m jackpot win, actually translates into something considerably less.

Unlike other lotteries around the world, or other games that offer multimillion jackpots such as the Mega Moolah slot machine, a big American lottery win can be accepted as either lump sum, or in 30 yearly payments called annuities.

While most people opt for a lump sum, over a 30-year term, they effectively lose out on almost half their winnings, as the lump sum represents the jackpot value, but spread out over 30 and adjusted to include inflation.

This means that instead of receiving a $400m lump sum, the lucky winner will receive barely more than half that at around $217m.

But the bad news for the winner doesn't stop there, if they receive their cash in a lump sum, being based in South Carolina, they would pay 7% income tax in South Carolina income Tax ($9.1m) plus they would also have to pay the top rate of Federal Income Tax of 39.6%, ($85.93m).

Once taxes of almost $95m are paid, the winner would then be left with a lump sum of around $122m. Still enough to last a few generations, but it would still leave you wondering where the rest of the money went.

Taking a lump sum in effect condemns you to losing almost two-thirds of the jackpot stated, a far from ideal situation. That said though, would you be any better off if you decided to receive your payments in annuity over the next 30 years?

Well, the good news for the winner is that if they decide to receive their payments each year, then they would receive considerably more, but nowhere near all, of their $400m jackpot.

Spread over 30 years, the payment our $400m ticket winner would receive would increase year on year, starting at around $7.1m in 2013, and increasing up to $20.2m in 2043. In total, this would mean that they would, in theory receive the full $400m jackpot.

However, over that period they would also pay federal tax and separate state taxes for South Carolina each year, which would amount to around £158m in federal taxes and £28m in state taxes for the duration of the payout.

This would mean that over the course of the 30 years, the winner would receive a total of around $214m. Which is considerably more than those who take a lump sum are guaranteed.

Of course, the issue for many winners here is will they be around in 30 years time to fully realise their wealth? While this may be practical for a 20 year old jackpot winner, for those aged 30-onwards, they are risking losing out on a lot of money if they are unfortunate enough to die before they receive the full payment.

Of course, whether the winner takes the lump sum or 30 years of payments, each option is still plenty of money for a $2 ticket, but it does highlight the fact that in America, even the biggest jackpot winners don't reap the rewards that make the headlines.

It also clearly demonstrates the benefits to gamblers in countries, such as the UK, where National Lottery winnings and other large scale gambling wins, such as those on machines like on the Mega Moolah slots, are all entirely tax-free. The winner receives the exact amount stated on the jackpot and is free to spend it as they please.

Byline: This article was published by Mega Moolah expert Henry. Media and other enquiries.

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