Aside from having a “rich aunt or uncle,” so to speak, winning the Powerball jackpot is the fastest way to become a millionaire or even a billionaire! Powerball has been trending on social media and is one of the hottest topics of conversation in offices, homes, and social gatherings.
Powerball is now played in 45 states, Washington DC, Puerto Rico, and the U.S. Virgin Islands. Powerball drawings are now held every Monday, Wednesday, and Saturday at 10:59 pm EST. As per www.powerball.com, sales cut off from one to two hours before the drawing, depending on which of the 48 jurisdictions your tickets are sold.
You might be wondering; how did Powerball get so big, how is it taxed and where do their profits go? To answer this, we must go back into history and mention some important milestones and dates:
-April 22, 1992: The first Powerball draw takes place after the original “Lotto America” is rebranded. Players pick 5 main numbers from 1-45 and a Powerball from another set of 1-45. Tickets were available in 15 jurisdictions.
-July 7th, 1993: The first 9-figure Powerball jackpot ($111 million) is won by a junior high school teacher from Wisconsin.
-November 5th, 1997: The number of main balls is increased to 49 while the Powerball pool is reduced to 42. The minimum jackpot is bumped up to $10 million.
-March 7th, 2001: The Power Play feature is introduced, giving players a chance to multiply non-jackpot prizes up to 5 times their original value.
-November 14th, 2002: The U.S. Virgin Islands becomes the first non-mainland territory to start selling Powerball tickets.
-December 25th, 2002: Andrew Whittaker from West Virginia wins the jackpot of $314 million, the biggest ever at the time.
-July 1st, 2003: Vermont starts selling tickets. As with many other state lotteries, all the profits go to an Education Fund. New York would later join and as per the New York constitution, ALL the profits go to public education in the state!
-August 31st, 2005: The number of main balls is increased from 53 to 53 and the minimum jackpot bumped up to $15 million.
-January 7th, 2009: The pool of main balls is increased to 59, whilst the Powerball pool is cut to 39. The minimum jackpot is set at $20 million. Florida joins the game and drawings start taking place at Universal Studios in Orlando.
-January 31st, 2010: An agreement is reached between the Multi-State Lottery Association (MUSL) and the Mega Millions consortium for states to offer both games. Previously, states had to decide between one or the other. Ten more states start selling Powerball tickets including New York and New Jersey!
-January 18th, 2012: The Powerball pool is reduced to 35 and the minimum jackpot is doubled to $40 million as the cost of playing goes up to $2 per line.
-April 13th, 2013: California introduces Powerball, although players cannot add the Power Play as state law dictates that prizes in California must be calculated on a “pari-mutuel” basis, considering total ticket sales and the number of winners.
-January 13th, 2016: A new record is set as 3 winners split a jackpot of $1.58 billion!
-April 8th, 2020: New Covid-19 rules come into effect eliminating the $40 million minimum grand prize and minimum rollover amount because the amounts could not be guaranteed following a massive drop in ticket sales shortly after Covid-19 was discovered. Instead, going forward, the starting jackpot and rollover amount will be based on game sales and interest rates!!!
-August 23rd, 2021: A new Monday drawing is introduced meaning, for the first time in history there are 3 weekly chances to win.
On Tuesday, November 8th, there was a winner of Monday’s $2.04 billion drawing from California. There are 2 options to choose from for prize winners, a lump sum, and a form of an annuity over 29 years.
Federal taxes in lump sum are almost 50%, which does NOT include state and in some cases city taxes. In New York, for example, winners are required by The NY Gaming Commission to pay 8.82% state taxes on winnings over $5,000. New York City has an income tax rate of 3.876% which is applied to lottery winnings taking a bigger bite out of your apple! The Federal and State lottery taxes are fixed percentages and have nothing to do with your income!
Key statistic: Whether they win $500 million or $1 million, 70% of lottery winners lose or spend all that money within 5 years! This is one of the reasons I recommend choosing the annual payout option.
An annual payout is a form of a guaranteed fixed annuity. Fixed annuities are a powerful and often misunderstood financial planning tool. The advantages of fixed annuities are guaranteed payments, tax-deferred, no inside fees, protection from creditors (lawsuit), and a designated beneficiary so it goes directly to your beneficiary, bypasses costly probate, and remains private!
When you win, give me a call as I would be happy to assist with your decisions, best of luck!