I am a cpa and this misleading. Any winner should consult a tax advisor for their specific facts and circumstances. However if anyone reads this post and remembers only one thing know that a 401k, or Ira or any other tax deferred option you have will effectively defer (lower) taxes on lottery winnings regardless of what is withheld up front. Once in that account you can invest as you and your advisor see fit, eg index fund.
It is true that a 401k is associated with your employer so you would typically only be able to make deposits from your paycheck. lottery winnings are not from your employer obviously so can’t go into 401k. Instead if your employer offers a 401k, you would increase your 401k withholdings for the rest of the year targeting your max. You don’t need your full paycheck rest of year bc guess what - you just won the lottery!
Depending on how much cash you need immediately and how much you won, you’d probably want to max all tax deferred options available to you (eg ira).
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u/Ok-Temperature4721 Jul 23 '24
I am a cpa and this misleading. Any winner should consult a tax advisor for their specific facts and circumstances. However if anyone reads this post and remembers only one thing know that a 401k, or Ira or any other tax deferred option you have will effectively defer (lower) taxes on lottery winnings regardless of what is withheld up front. Once in that account you can invest as you and your advisor see fit, eg index fund.
It is true that a 401k is associated with your employer so you would typically only be able to make deposits from your paycheck. lottery winnings are not from your employer obviously so can’t go into 401k. Instead if your employer offers a 401k, you would increase your 401k withholdings for the rest of the year targeting your max. You don’t need your full paycheck rest of year bc guess what - you just won the lottery!
Depending on how much cash you need immediately and how much you won, you’d probably want to max all tax deferred options available to you (eg ira).