First step, you win the Mega Millions lottery. Next step?

The Mega Millions lottery jackpot is now at $400 million dollars. Of course if you do win, you won’t get anywhere near that. 

Yes it’s Friday the 13th, but it might just be somebody’s lucky day today. 

The Mega Millions lottery jackpot is now at $400 million dollars. Of course if you do win, you won’t get anywhere near that. 

Steven Matlock’s lucky day was in 2001. After playing the same lottery numbers for 15 years, he and four friends won $6 million.   

“We had to pay an extraordinary amount in taxes, it was unbelievable,” he recalls. “When we started out it was about [$1.2 million] for each of us, and when all was said and done we ended up with just about half.”

Matlock took his winnings as a lump sum as opposed to having it drawn out over several years. If the winner of the Mega Millions lottery takes a lump sum, she or he will get $216 million (out of a total of $400 million). If they take incremental payments over 30 years, they’ll get close to the $400 million -- but again spread out over 30 years. 

The winner will also do better by his or her taxes, says Janet Stanzak, president elect of the Financial Planning Association.  

“If you take it all at once, the bulk of the money is all taxed at the highest bracket,” she says. “Whereas if you take some money each year, each year you get the benefit of those lower tax brackets.”

Every dollar you make after reaching $450,000 a year gets taxed at the highest tax bracket of 39.6 percent. Every dollar under that amount is taxed at lower rates. So if you take the lump sum, the bulk of your money is taxed at the highest rate. If you take annual payments, you get to pay less in taxes on $450,000 of every year’s income. It adds up. 

Other pitfalls: unscrupulous investment brokers, a deluge of charities, and moocher friends. Stanzak says it’s critical to get a financial planner to help. “It’s like being dropped into the middle of New York City for the first time and being expected to know how to get to Washington, DC,” she says. "You need help."

But the real advice to hanging on to your money? “Sit on it!” says Matlock. “Sit on it for probably a good six months before you decide what you wanna do,” says Matlock. “Stay away from the impulse purchases.”

Buying a new home in a nice neighborhood or getting a luxurious car -- “all those things cross your mind,” he says. “We sat down and decided what we wanted to do and we realized it wasn’t gonna go as far as we thought, we had kids in college, we slowed down.” 

They didn’t move, and while they did some extensive remodeling, they didn’t buy another home.   

“You can move into a fancy neighborhood and not like your neighbors if they’re uppity or snooty.  I had great neighbors and we stayed right here.”

Not all winners are as restrained.  Stanzak  says typically after 3 years, most lottery winners are back right where their started.  “Their lottery winnings are typically gone.”

About the author

Sabri Ben-Achour is a reporter for Marketplace, based in the New York City bureau. He covers Wall Street, finance, and anything New York and money related.

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