How Not To Fumble A Billion-Dollar Powerball Bag

Click here to view the published press.

The Powerball jackpot has climbed to an estimated $1.70 billion for the next drawing on Saturday, September 6. The cash value stands at $770.3 million.

The prize amount increased after no ticket matched all six winning numbers in Wednesday night’s drawing.

Saturday’s Powerball jackpot is also one for the record books. At $1.7 billion, it ranks as the third largest in U.S. history, behind the $2.04 billion win in November 2022 and the $1.765 billion prize in October 2023. Both of those massive jackpots were claimed in California.

If you beat the impossible odds of 1 in 292,201,338 and snag the Powerball grand prize, don’t sit on your ticket. Lottery wins come with an expiration date, usually anywhere from 90 days to a year, depending on the state. Most tickets include the deadline printed on the back, but if yours doesn’t, check with your state lottery to avoid turning a billion-dollar win into a very sad souvenir.

When a winner does emerge, they will face one of the most consequential financial decisions of their life: taking the full prize in annual payments spread over 30 payments or claiming a lump sum that amounts to less than half the advertised jackpot.

Lump Sum or Annuity?

If you hit the Powerball jackpot, you’ve got two ways to cash out.

You can lock in an annuity worth about $1.7 billion, which starts with an upfront payment followed by 29 annual checks that rise 5% each year. Or you can grab the lump sum—$770.3 million—all at once. Both numbers are before federal taxes, so Uncle Sam still gets his cut.

Eric Croak, a certified financial planner and president of Croak Capital in Ohio, said the first choice often sets the tone for whether a winner can preserve their fortune.

“Claiming the lump sum gives you the freedom to make your own choices, but it also exposes you to the error rate of your own decision-making,” Croak says.

“An annuity might protect you against poor choices, but it also ties you to 30 years of inflation risk. The most prudent winner is the one who’s honest about their discipline and whether they can build the right team to manage outsized sums.”

Lump Sum: Pros & Cons

Pros

• Potential to grow your wealth faster. If invested wisely, you may earn more than the annuity’s built-in 5% return.
• Flexibility in planning. You can easily set up trusts, structure your estate plan or make large charitable gifts right away.
• Control over the timing of taxes. You pay once upfront, which lets you plan long-term strategies without worrying about shifting tax brackets each year.

Cons

• Higher risk of running out. Without discipline, it’s easier to overspend or make poor investment decisions.
• Lower headline payout. The lump sum is significantly less than the advertised jackpot.
• Heavy immediate tax bill. Federal and state taxes come off the top before you see the money.

Annuity: Pros & Cons

Pros

• Guaranteed income stream. You can’t blow it all at once, which reduces the risk of going broke.
• Protection against yourself (and others). Annual checks help limit pressure from scammers, friends or family to hand over large amounts.
• Payments grow 5% annually. This offers some hedge against inflation and ensures a rising income over time.

Cons

• Less flexibility. You can’t easily make a big one-time investment or cover large expenses right away.
• Long commitment. You’re locked into 29 years of payments; if you die, your heirs may not get the full amount.
• Inflation risk long-term. Even with increases, your dollars may not stretch as far in over 20 years.

The lump sum option favors people with strong financial teams who can invest wisely. The annuity works better for those who want built-in guardrails and a steady income for life.

Taxes Come First

The euphoria of winning often overshadows the fact that federal and, in many states, local governments take a substantial cut.

The IRS says all lottery winnings are taxable income. That means if you win the Powerball, you must report it on your federal income tax return.

If your winnings are more than $5,000, the lottery is required to take out 24% right away for federal income taxes before you even see the money. This is called withholding.

But that 24% is only the first payment. When you file your tax return, the IRS checks your total income and applies the tax brackets for that year. If your income is high enough, you may owe more.

2025 Federal Tax Brackets for Single Filers

• 10% on income up to $11,925
• 12% on income from $11,926 to $48,475
• 22% on income from $48,476 to $103,350
• 24% on income from $103,351 to $197,300
• 32% on income from $197,301 to $250,525
• 35% on income from $250,526 to $626,350
• 37% on income over $626,350

If you win $770.3 million and take the lump-sum cash option, here’s how it works:

The IRS immediately withholds 24% of your winnings—around $184.9 million. That means you’d initially receive about $585.4 million.

Your winnings put you in the highest federal income tax bracket (37%), so nearly all of the $770.3 million is taxed at this rate.

Adding up all the brackets, your total federal tax bill comes to about $285 million. Since only $184.9 million was withheld initially, you’d still owe roughly $100 million more when you file your 2025 tax return in April 2026.

It works this way because the U.S. tax system is progressive. That means you don’t pay one flat rate on all your income. Instead, your income is taxed in pieces (“brackets”).

The first dollars are taxed at low rates, and only the dollars above each threshold are taxed at higher rates. For someone winning hundreds of millions, nearly the entire amount ends up in the top 37% bracket, which is why the final bill is higher than the 24% withheld upfront.

“Many people don’t realize that once you invest a large chunk of money, it will likely kick off taxable income. They may jump up several tax brackets overnight,” says Rachael Burns, a financial planner at True Worth Financial Planning.

And then there are state taxes, for some. If you’re unsure what taxes you’ll owe on a big win, check your state lottery’s website or talk to a tax professional who can walk you through the rules before you claim your prize.

However, some states don’t tax lottery winnings at all or don’t have state income tax. That list includes Alabama, Alaska, California, Florida, Hawaii, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Utah, Washington and Wyoming. In a few places, the rules are mixed.

For example, California doesn’t tax winnings from its own lottery, but it does tax prizes from other states.

Burns points out that new winners should meet with a certified public accountant (CPA) to map out a tax plan right away. Without planning, investing millions could push someone into a much higher tax bracket overnight.

A CPA can recommend ways to lessen the tax hit, such as investing money into accounts that earn tax-free interest or grow tax-deferred, meaning taxes are only paid upon withdrawal.

For example, municipal bonds often pay interest that isn’t taxed at the federal level, and sometimes not at the state or local level if you live where the bond is issued.

Savings bonds like Series EE or Series I can also be tax-free when used for qualified education expenses. And Roth IRAs allow money to grow over time, with tax-free withdrawals in retirement if certain conditions are met. These strategies help keep more of the winnings working for you over time.

Protect Yourself With the Right Team

Sudden wealth can be just as dangerous as it is exciting. Overspending, bad advice and public attention can drain a fortune faster than you think.

“It’s normal for people to adjust their spending habits once they have access to a lot more money. However, it is important that you know your limits,” says Burns.

“Even billionaires could spend themselves down to $0 if they’re not careful. You should meet with a financial planner who can help you set goals and determine how much money you truly have to spend.”

At minimum, you need a fiduciary financial planner, a tax professional and an estate attorney, Croak says.

“Avoid anyone who cold emails you or pitches a ‘once-in-a-lifetime opportunity.’ That translates to: they want to get rich off your money.”

Four Tips for Protecting a Powerball Fortune

Winning the lottery is exciting, but keeping the money is harder than getting it. Experts say the smartest move is to think long term and avoid mistakes that have bankrupted past winners.

1. Pay off your debt.
   Clear credit cards, student loans or mortgages before you invest. Wiping out debt saves you from paying interest and gives you a clean slate.
2. Keep cash safe while you plan.
   Put part of your winnings in insured savings or money market accounts. That way, your money earns interest and stays protected while you decide on long-term strategies.
3. Work with trusted professionals.
   Hire a fiduciary financial advisor, a tax expert and a lawyer. A fiduciary is legally required to put your interests first, which means advice that benefits you rather than them.
4. Create an estate plan.
   Set up trusts and other legal protections so your wealth passes to loved ones instead of being eaten up by lawsuits or taxes.

Croak cautions that wealth is not only a financial test but a personal one.

“Money can buy freedom, but freedom does not replace identity,” he says. “Winning the lottery, then retiring and doing nothing, is a recipe for rash decisions and depression.

Keep some kind of structure—a career, a project or charitable work—before walking away for good.”