A LOTTERY winner who scored nearly $10,000,000 has found out he won't be getting so rich after all.
Jackpot winners face a tough choice on how to collect their winnings, and one option drastically reduces the total amount.
Robert Reda of Suffren, New York, about an hour outside New York City, might have been fantasizing about yachts and never-ending vacations when he found out he won $9.6 million on the New York Lotto jackpot.
He matched the first six numbers drawn on November 1 to collect the top prize.
However, Reda has received just $3,308,147 in his bank account, slightly more than only a third of the actual jackpot.
Lottery winners have to pay around 24% federal income tax and winners in New York also have to pay state tax on their winnings.
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But taxes were not the only reason for the significant reduction to his windfall.
The biggest bite out of Reda's riches came in the form of the cash value option.
So, what is the cash value option?
TOUGH CHOICE
All winners of large lottery prizes are given two choices.
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Either, they can take the whole jackpot over around 30 years in the form of monthly annuity payments.
Or, they can choose to accept a significantly smaller sum upfront immediately.
Reda opted to receive the lump sum, which has some advantages despite resulting in a smaller dollar amount.
Many financial experts agree that the lump sum is the wiser choice.
LUMP SUM STRATEGY
Dave Ramsey once told a lottery winner on The Dave Ramsey Show: "You will make almost twice as much if you take the lump sum and invest it.
"I know I will come out more investing the money after taxes than I will by leaving it with those guys in that annuity,” he said.
However, Ramsey thinks that someone likely to mismanage their lump sump ought to take the annuity payments instead so they can't blow the whole amount.
Reda is not the only lottery winner who decided to take the smaller amount upfront.
One man who won $5 million on a scratch-off card took home just $2, 235,000 because of that same choice.
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Remember, playing the lottery is a form of gambling and should be done responsibly.
If you or someone you know has signs of gambling addiction, call the National Gambling Hotline at 1-800-522-4700 or visit the National Council on Problem Gambling website.
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