Watch Out For The Shocking Hidden Fees That Eat Up Your Lottery Winnings


Winning was a happy time for $21 Million winner Wayne O'Keefe (right), but watch those hidden costs! PHOTO: CA Lottery

It's been a happy day for you. You're tired after the all-night celebrations, but you are about to collect your enormous check from the lottery headquarters.

You're looking forward to a life free of worry.

The meeting with the smiling lottery official goes well until he asks you a potentially heart-stopping question:

"Do you want it all in cash, or as a yearly payout?"

You are surprised but not worried. "Hey, all cash please!"

Ding! That's the sound of your win being cut in half.

That's because the cash value of many lottery prizes is based on different rules. In the USA the $100 million you see advertised on the lottery sites often drops to as low as $50 million for the all cash redemption.


The prize gets even smaller when there are many winners involved.

If you are a Mega Millions jackpot winner, for example, their website's FAQ sets out the annuity option pays annual payments over a 26-year period.

For every $1,000,000 in the jackpot, Mega Millions winners will receive approximately $38,500 per year before taxes.

For the Cash option, winners get a one-time, lump-sum payment that is equal to all the cash in the Mega Millions jackpot prize pool.

Confused, you take the lottery official's advice and see a financial planner who specializes in lottery winning.

But financial planners don't come cheap.

She has bad news for you: "If you take the yearly payout, you'll get more over the years than the all-cash option," she says.

At last ... more is better, you think.

"With the cash option, the state has to withhold 25% for federal and income taxes," she adds. "And you have to pay that straight away."

You briefly consider fleeing to a tax haven.

She smiles. "At least with the annuity you only pay taxes each year, not all at once."

Small improvement.

She recommends a tax attorney who will help with that side of your planning.

But experts don't come cheap - after all, they have to get a return for all their years of tax training.

And so it goes on.

So what's the answer... what's the best way to claim your prize with the least deductions?

According to Investopedia, you have some options:

- Take the cash prize and pay the tax. Most winners do. This is the best option if you want the prize and can afford to miss the instant tax bill.

- Sell the prize. You can still benefit from your win by selling the prize to companies who specialize in doing this. You still have to pay tax on the proceeds.

- Donate the prize. In some cases, you can donate the prize to a tax-exempt charitable organization without paying tax on it.

Most folk will take the cash prize and pay the associated taxes and costs. After all, this chance only comes round once!

As always, take proper legal advice before making any decisions based on this information.

Dear Ken,

You wonderful man and your splendid system got me $67,000 in the second prize (where I played only half the amount you suggested to me). The pro is what I used and it came up with the numbers easily and in record time! I spent $40 but it was well worth all the spare money I had to win this amazing amount. I have never won a lottery before I used yours.

Cathy K. (wibb*******