Personal Finance

Powerball jackpot jumps to $640 million. What to do if you win

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Key Points
  • The chance of a single ticket matching all six numbers in either game is miniscule — 1 in 302 million for Mega Millions and 1 in 292 million for Powerball.
  • Nevertheless, it's worth considering how you would handle such a windfall if you manage to beat the odds.
  • The Mega Millions jackpot is $750 million for Friday night's drawing.
Justin Sullivan | Getty Images News | Getty Images

The Powerball and Mega Millions jackpots just won't quit.

With no ticket matching all six numbers drawn Wednesday night in Powerball, the top prize has shot up to $640 million. The Mega Millions jackpot is $750 million for Friday night's drawing. Both amounts — which exceed the entire economic activity of some small nations — are among the top 10 biggest jackpots in U.S. lottery history.

While the chance of a single ticket matching all six numbers in either game is miniscule — 1 in 302 million for Mega Millions and 1 in 292 million for Powerball — it's still worth considering how you would handle such a windfall if you were to beat the odds.

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How the Mega Millions and Powerball lotteries work

First and foremost

One of the most important aspects of winning an extreme amount of money is to protect the winning ticket. Experts recommend making a copy and putting it in a safe place.

Your goal should be to share the news with as few people as possible. You also should aim to shield your identity. So while the standard advice is to sign the back of the ticket, be aware that it could interfere with your ability to remain anonymous if state laws allow you to create a trust or limited liability corporation to claim the windfall instead of doing so in your own name.

And you should seek expert advice before claiming your prize, starting with an attorney who can help you navigate your sudden wealth. Your team should also include a CPA and financial advisor, who should be experienced in helping clients navigate huge windfalls.

"You want to have thoughtful [experts] guide you through the emotional side of winning but also the obligation that comes with having this kind of wealth," said CPA Mark Alaimo, a member of the personal financial specialist committee for the American Institute of CPAs.

Reducing your tax bill

For the $750 million Mega Millions jackpot, the cash option — which most winners choose instead of an annuity — is $550.6 million.

Before that gets to you, however, 24% — or $132.2 million — will be withheld for federal taxes. You also could count on owing a lot more to Uncle Sam due to the highest marginal rate of 37% applying to income above $523,600 for individual tax filers and $628,300 for married couples filing jointly. State taxes also are typically due.

For Powerball's $640 million jackpot, the lump sum option is $478.7 million. The 24% withholding would be about $114.9 million. And, again, more would be due.

The most immediate way to reduce the amount of income tax you pay is to think charitably, especially during the pandemic. Basically, the government gives you a tax break if you use private money to do public good.

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You can contribute cash, up to 60% of your adjusted gross income, to a public charity or a donor-advised fund and get a tax deduction for the amount in the year you make the donation. You also could create a private foundation, donate income to it and then determine over time how to dole it out.

"A private foundation can run programs," Alaimo said. "You could open and run a soup kitchen that's owned by the foundation. With a donor-advised fund, you can only donate to [an existing] soup kitchen."

Investment opportunities 

Big jackpot winners will see doors open to an investment world that most Americans will never get a direct peek at.

To get access to more exclusive investments opportunities, wealthier individuals can be deemed "accredited" by federal regulators — meaning they meet the test of having at least $1 million in investable assets (excluding the value of their home) or average yearly earnings of $200,000 ($300,000 for married couples). 

Investment opportunities that will become available to the winners run the gamut, Alaimo said. For instance, they could gain access to private equity funds that invest in companies whose shares don't trade on stock exchanges. Or, they could get the chance to invest in commercial real estate or venture capital funds that invest in things like tech start-ups.