The Mega Millions jackpot reached a record-breaking $540 million in the pot this morning, and has since grown to $640 million and counting. The odds of winning stink, but at $1 to buy in, it’s not much of an investment, so people nationwide are hoarding those little tickets in hopes of winning the grand prize: a life-size commemorative check. Plus some major cash flow.
On the way to work this morning, I heard some entertaining soundbites as Mega Millions hopefuls talked about their plans to use the money if they won: “I’d quit my job in the city!” and “I’d buy a mansion for myself and my parents!” and my personal favorite, ”I would use it to buy stuff for everyone I know, like, all the time!”
Ah, such nice hopes and dreams, but unfortunately winning the lotto can come with its own set of complications. Many past lottery winners have squandered their earnings, overspent into debt or bankruptcy, and encountered relationship problems after winning big. Plus, you gotta pay taxes on that cash cow.
Gambling winnings are fully taxable. First up, there’s a federal withholding tax of 25% on any lotto winnings over $5,000. You must also list the money you win as income in the year(s) you receive payment(s), which is likely to skyrocket you into a higher tax bracket. If you take the money in payments rather than a lump sum, be prepared to keep paying up when tax season comes around again…and again.
Then there are state taxes. The withholding rate varies by state, from 3.4% in Indiana to 12% in New York City. (16 states don’t withhold lotto winnings, a move they might regret if someone from their state takes home the jackpot.) Once the government has wrung out its share of the earnings, and once future taxes are factored in, lotto winners take home substantially less than the big check says–a problem if they’re already counting the zeros and planning out where each will go.
Money makes people do crazy things–and I’m not just talking about those who win the massive pot. When John Whittaker won the $315 million Powerball jackpot on Christmas morning in 2002, he tried to use his money for good, donating $15 million to build two new churches. He then began getting huge volumes of letters in the mail, with bizarre requests from people asking for money so they could buy stuff like entertainment systems and Hummers. Whittaker later said that whenever he went to a public event like a basketball game, strangers would come up to him left and right asking for money. Eventually he spent nearly $3 million fending off 400 lawsuits brought against his construction company by people wanting a piece of his fortune.
Then, of course, you can also be a hazard to yourself if you get your hands on all those bills and don’t keep a level head. Don’t do what these past winners did:
- 16-year old Callie Rogers won £1.9 million (about $3 million) in a 2003 UK lottery, and promptly blew it on lavish vacations, homes for family members, glitzy cars, fashion…and cocaine. She later said that the huge sum of money and spending sprees exacerbated her mental health issues.
- William “Bud” Post won $16.2 million in a 1988 lottery. Within three months of receiving his first annual payment of $497,953, he had already spent his way to $500,000 in debt–in part with good intentions, like buying a used-car lot for his brother. Post later went deeper into debt, and spent his remaining wealth (after selling off the mansion he bought to pay back the landlord who sued him for 30% of his winnings and won–yeah, this is getting messy) on motorcycles, cars, 62-inch TVs and two more homes. After serving prison time due to firing a shotgun at a debt collector, he ended up living off $450 per month in disability checks.
- Back to John Whittaker: with the surmounting stress, he started drinking heavily, got a DUI, and was sued by a casino for $1.5 million in bounced checks over gambling losses.
That all being said, there is some good news: some studies argue that on the whole, people who win the lotto end up being just as happy as they were before.
What would you do with the Mega Millions jackpot?