Nov 28, 2024
Just think: One failed glance and she might've mistaken that paper jammed in her purse for a worthless grocery list and discarded it. After all, she did pick it up on a whim while rushing out of a Jewel-Osco grocery store in Elmhurst, Illinois.
But the forgotten Lucky Day Lotto ticket turned out to be worth enough to buy countless servings of grass-fed beef, Jet-Puffed marshmallows — anything she wants. Several days after the state's Oct. 20 drawing, the woman (who chose to remain anonymous) discovered she'd matched all five winning numbers to claim a seven-figure jackpot.
Advertisement
“I saw the ticket in my purse and opened my lottery app to scan my ticket and check if it was a winner,” she told Illinois Lottery. “I immediately saw '$1,000,000' on the screen.”
Disbelieving, she double-checked. Yup, a cool million, now hers.
"I instantly started crying," she said. "I thought, ‘This is unbelievable.’”
Her impulse buy turned improbable windfall makes for the quintessential lottery story, one where financial fortunes turn on a dime. And while it can be easy for many lottery winners to eat through their winnings quickly, it's rarer to hear stories of winners using their newfound fortunes to enhance their wealth and happiness.
Having landed the ultimate jewel of Jewel-Osco, the winner plans to take annual trips to the Emerald Isle.
“[Ireland is] my favorite place in the whole world,” she said.
Advertisement
But what if it were you? Here’s what to consider before spending a sudden fortune.
Why $1 million isn’t really $1 million
Not to spoil the party, but let’s begin with the tax implications. According to the IRS, lottery winnings of $5,000 or more are subject to a 24% withholding rate off the top for federal income tax. There may also be a local state tax to consider, which will vary depending on where you live.
In Illinois, lottery winnings of $1,000 or more must have Illinois Income Tax withheld — which would be 4.95% of the prize money. And when it comes time to file your tax return, lottery winnings are considered ordinary income and are taxed the same as wages or a salary.
If our Illinois winner takes her $1 million in a lump sum, she’ll hop into the top marginal federal tax bracket. For 2024, that’s 37% for individual taxpayers with incomes greater than $609,350 or $731,200 for married couples filing jointly. But that rate will only apply to income over $609,350. Spreading out your winnings and opting for annual payments over a certain period of time could help you stay below the top tax rate each year.
If you’re a regular lottery player, you can also claim losses against winnings so long as you provide proper proof.
But in the end, you’re not taking home as much as you may think. That’s why it’s important to consider how you can make the most of the winnings you’re left with.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
How to lower taxes on your windfall
These four strategies can help lessen the government’s share of your take:
-
Opt for yearly payments. By taking ten annual disbursements of $100,000, the Lucky Lotto winner could fall back a few marginal tax brackets, depending how much income they make from their day job.
-
Donate to charity. If you’d planned to do this anyway, recognize that charitable gifts are often tax-deductible. The IRS states that individuals may deduct qualified contributions of up to 100% of their adjusted gross income.
-
Consult a top-tier CTA. While fees for premier tax advisors can run around $500 or more, it’s worth every penny if they can find deductions that save you tens of thousands of dollars.
-
Invest it back into a sole proprietorship. Putting the winnings toward capital improvements or equipment to build out your existing Schedule C business may make much of that portion tax-free. Always consult a tax or financial professional when in doubt, and should you want to show off your winning ticket, so much the better.
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Lou Carlozo is a freelance contributor to Moneywise.
