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Investor Toolkit

The Federal Reserve on Wednesday enacted its fourth consecutive three-quarters of a percentage point interest rate increase to fight inflation.
The series of rate hikes have affected government bond yields, creating yield curve inversions, when shorter-term government bonds have higher yields than long term.
While some experts believe the inverted yield curve signals trouble for the economy, advisors say there still may be opportunities for investors.

Martin Barraud | Caiaimage | Getty Images

After another 0.75 percentage interest rate hike from the Federal Reserve, financial experts have tips for investors amid volatility in the stock and bond markets.  
Continuing to fight inflation, the central bank on Wednesday announced its fourth consecutive three-quarters of a percentage point interest rate increase. 

The latest move comes after annual inflation rose more than expected in September, climbing by 8.2% on a 12-month basis, according to the U.S. Department of Labor.
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The Fed’s series of interest rate hikes have also affected government bond yields, creating a so-called inverted yield curve, which happens when shorter-term bonds have higher yields than bonds with longer maturities.    
Following the Fed’s decision, the policy-sensitive 2-year Treasury was around 4.468%, paying more than the 10-year Treasury at 3.986%.
While some experts believe certain yield curve inversions may forecast a future recession, financial advisors say the economic conditions may also provide timely options for investors. 

“There are absolutely opportunities present with an inverted yield curve,” said Andrew Fincher, a certified financial planner at VLP Financial Advisors in Vienna, Virginia. 

There are absolutely opportunities present with an inverted yield curve.

Andrew Fincher
Financial Advisor at VLP Financial Advisors

He said the Fed’s “aggressive policy” has caused a spike in short-term yields, which some investors are using as a place to “park cash” until volatility subsides.
Matthew Gelfand, a CFP and executive director of Tricolor Capital Advisors in Bethesda, Maryland, also pointed to higher yields for short-term bonds. As assets mature faster, investors can reinvest funds sooner to capture rising yields, he said.
Currently, “you’re getting just as much yield with less volatility risk,” with short-term assets, he said. The reason: longer-term bonds are more vulnerable to price changes as rates increase.
Of course, short-term bonds are less attractive as rates decline since you can’t lock in the higher rate for a longer period. “There’s always a trade-off,” Gelfand said. 

‘Hope for the best, but plan for the worst’ with future rate hikes

Jon Ulin, a CFP and CEO of Ulin & Co. Wealth Management in Boca Raton, Florida, has told clients to “hope for the best but plan for the worst” in case rates continue to climb through 2023.
If your portfolio’s long-term bonds are down, it may be a “good time” to consider tax-loss harvesting — using losses to offset gains — and shifting to shorter-term bond allocations, Ulin suggested. 
However, if interest rates begin to fall again in 2023, he plans to shift a portion of bond allocations back to intermediate or long-term maturities. More

Many undergraduate students who are eligible for Pell Grants don’t apply for them.
Here’s what to know about the aid, which can make college more affordable.

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Pell Grants have been in the news a great deal after President Joe Biden announced his sweeping student loan forgiveness plan.
The president’s policy, unveiled in August, offers up to $10,000 in loan cancellation for tens of millions of Americans who borrowed for their education. And it goes further for those who received a Pell Grant in college, a type of aid available to low-income families, by clearing as much as $20,000 from their student debt balance.

The federal Pell Grant program, signed into law in 1965, is one of the largest sources of financial aid available to college students. More than 6 million undergraduate students received the grants in 2020.

Yet many other eligible students miss out on the grant because they don’t apply for it, said Betsy Mayotte, president of The Institute of Student Loan Advisors. The consequences of that loss can be severe, Mayotte said.
“It could mean not attending or completing college, or taking out more expensive private student loans,” she said.
Here’s what families need to know about Pell Grants.

Pell Grants are worth up to $6,895

In the 2022-2023 academic year, Pell Grants range from a minimum of $692 to a maximum of $6,895, depending on how much it’s calculated that a student’s family will be able to contribute to their college costs, said higher education expert Mark Kantrowitz.

In some cases, a student can receive more than the maximum aid for a single year if they’re in an accelerated degree program, Kantrowitz added.

Funds help undergrads from ‘low-income families’

You must submit a FAFSA to qualify

To qualify for a Pell Grant, you have to submit the Free Application for Federal Student Aid, or FAFSA, form, said Michele Streeter, senior director of college affordability at The Institute for College Access & Success. You’ll have to do this each year you’re enrolled in college, Streeter added.
“You should always submit a FAFSA, even if you don’t think you’ll qualify for aid,” she said.
In some cases, if you’re in school right now and haven’t filed the FAFSA this year, you may be able to apply by the June 30 deadline and still get the grant for this academic year.

There’s a limit to how many Pell Grants you can get

College students typically can receive the grant for up to six years. That’s important to know, considering more than half of undergraduates take more than four years to graduate.

How aid is paid depends on your college

At most colleges, the grant is given out in two disbursements, at the start of each term, Kantrowitz said.
“However, many colleges prefer to make monthly or biweekly disbursements,” he added. “This is often called ‘Pell as a paycheck.'”  

Funds typically cover tuition, but other expenses qualify

Pell Grant funds are applied first to tuition and fees, Kantrowitz said. Any college-owned or -operated housing could also be covered by the aid.
If there’s still money left over after those costs are covered, it’s usually disbursed to the student within 14 days, Kantrowitz said.
“The student can then use the money to pay for other college costs, such as textbooks,” he said.

You usually don’t have to pay the money back

A federal Pell Grant, unlike a student loan, typically doesn’t have to be repaid. The exceptions are rare, and include cases in which your enrollment status changed from full time to part time or if you left a program early.

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There are deductibles, copays and coinsurance — and no out-of-pocket maximum — in basic Medicare (Part A hospital coverage and Part B outpatient services coverage).
A so-called Medigap policy — which comes with a premium that varies from plan to plan — could help pick up some of those costs, although you may be subject to medical underwriting (and possible denial of coverage).
You also would need to get a standalone Part D plan if you want prescription drug coverage.

FatCamera | E+ | Getty Images

For some Medicare beneficiaries, an Advantage Plan ends up not being a good fit.
If you’re in this situation and are thinking about dropping your plan to return to basic Medicare — Part A (hospital coverage) and Part B (outpatient services) — there are some things to consider before you make the move.

While you’d generally gain the freedom to go to any doctor or other provider you want instead of only those in a plan’s network, the switch likely would include new costs.
“It’s important to compare [coverage options] not only on a provider and medication basis but also on your total financial picture,” said Elizabeth Gavino, founder of Lewin & Gavino and an independent broker and general agent for Medicare plans.
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During Medicare’s annual open enrollment period, which started Oct. 15 and runs through Dec. 7, you can make changes to your coverage. Here’s what to consider if you want to ditch an Advantage Plan altogether.

Basic Medicare comes with its own costs

Advantage Plans, which are offered by private insurance companies and deliver Parts A and B benefits — and usually include Part D (prescription drug coverage) — come with deductibles, copays or coinsurance and out-of-pocket maximums, but they differ from plan to plan.

Basic Medicare also has cost-sharing amounts that are adjusted annually.
Part A usually has no premium but comes with deductibles and coinsurance. For 2023, the deductible will be $1,600 per benefit period (which generally starts when you are admitted to the hospital). That applies to the first 60 days of inpatient care.

For the 61st through 90th day, the coinsurance will be $400 per day in 2023. For lifetime reserve days, the charge will be $800 per day.
As for Part B, the standard premium next year is $164.90 (although higher-income beneficiaries pay more). The deductible will be $226, and then you generally would pay 20% of the cost of services.
“That could include expensive things like outpatient surgery, diagnostic exams, ambulance rides, chemotherapy and dialysis,” said Danielle Roberts, co-founder of insurance firm Boomer Benefits.
There also is no out-of-pocket maximum with basic Medicare. However, you may be able to get a Medigap policy, which would cover some cost-sharing.

Getting a Medigap plan is not a given

Be aware, however, that you may have to go through medical underwriting to be approved for this type of supplement.
Medigap plans, which also are sold by private insurance companies, help cover cost-sharing aspects of Parts A and Part B including copays and coinsurance. Policies are standardized — same-named plans offer identical benefits no matter which insurer sells them — but the premiums vary among plans, insurers and locations.
These plans also come with their own set of rules for enrolling.
When you first sign up for Part B, you get six months to buy a Medigap policy without an insurance company nosing through your health history and deciding whether or not to insure you. After that, unless you meet a special exception or live in a state with no restrictions on enrolling, you typically must go through medical underwriting.

There is not a guarantee that the underwriter will approve you for the Medigap policy.

Danielle Roberts
co-founder of Boomer Benefits

“There is not a guarantee that the underwriter will approve you for the Medigap policy,” Roberts said.
This means it may be wise to avoid dropping your Advantage Plan until you know you’d be able to get the Medigap policy.
There is an exception: If you had a Medigap policy but dropped it to try an Advantage Plan for the first time, you get a year to change your mind. That 12-month trial period lets you drop an Advantage Plan and return to the Medigap plan you were previously enrolled in.
Also be aware that while Medigap plans help with Parts A and B costs, they do not provide any coverage for Part D.

Don’t forget about coverage for prescriptions

Most Advantage Plans include Part D. If you drop your plan in favor of basic Medicare, you’ll need to sign up for a standalone Part D plan, which you can do during the current open enrollment period.
The average premium for Part D in 2023 will be about $31.50, with higher-income beneficiaries paying more. The maximum deductible that a Part D plan can have will be $505.

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President Joe Biden said Tuesday that recent improvements to Medicare and benefits from Social Security could be on the chopping block if Republicans take control of Congress on Election Day.
Unlike past elections, the programs have become more of a front-burner issue this year, experts say.
Here’s what Democrats say could be at stake.

Voters turn out to cast their ballots as early voting begins on Oct. 17, 2022 in Atlanta. Early voting in Georgia runs through Nov. 4.
Megan Varner | Getty Images

The Nov. 8 midterm elections will give voters an opportunity to decide which parties control the Senate and the House of Representatives.
In recent days, Democrats have been turning up the heat on the idea that the results may also shape the future of two government programs retirees rely on, Social Security and Medicare.

“They’re coming after your Social Security and Medicare in a big way,” President Joe Biden said of Republicans in a speech Tuesday in Hallandale Beach, Florida.
At the event, Biden touted the recent passage of the Inflation Reduction Act, which will curb Medicare prescription drug costs for seniors.
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The legislation gives Medicare the ability to negotiate prices for certain high-price drugs, caps insulin at $35 per month under Medicare Part D and limits out-of-pocket prescription costs under Part D to $2,000 per month, among other changes.
But Republican opposition could lead the party to stop those changes if they win control on Election Day, Biden warned.

He also pointed to impending risks to Social Security based on plans floated by certain Republican lawmakers, namely Sens. Rick Scott of Florida and Ron Johnson of Wisconsin. Both lawmakers have denied intentions to harm the program.
Biden held up a pamphlet of Scott’s plans, which call for requiring Social Security and Medicare to be reauthorized by Congress every five years.

President Joe Biden speaks about protecting Social Security, Medicare, and lowering prescription drug costs, during a visit to OB Johnson Park and Community Center, in Hallandale Beach, Florida, on Nov. 1, 2022.
Kevin Lamarque | Reuters

“It goes out of existence if Congress doesn’t vote to keep it,” said Biden, who called the proposal “so outrageous you might not even believe it.”
An even stricter proposal, from Johnson, calls for the programs to be revisited annually. Republicans may raise the retirement age for Social Security and shrink benefits, Biden warned.

Advocates call to preserve, expand Social Security

Those threats to Social Security and Medicare have led to a heated campaign season as advocates work to defend the programs.
Jon Bauman, president of the Social Security Works Political Action Committee, has attended at least 45 in-person events for 35 campaigns this election season.
One of those campaign stops was an event for Democratic Rep. Tom Malinowski at a senior living community in New Providence, New Jersey, on a sunny Friday afternoon in early October.
It included a musical performance by Bauman, who was known as “Bowzer” when he was part of the musical group Sha Na Na — which had an eponymous TV show in the 1970s — and appeared in the 1978 film “Grease.”

Musician Jon “Bowzer” Bauman at a concert appearance with Bowzer & the Stingrays on Jan. 17, 2016.
John Atashian | Getty Images Entertainment | Getty Images

While Bauman displayed his musical range — from singing “Rama Lama Ding Dong,” from “Grease,” to playing Frederic Chopin on a keyboard — he also explained how Social Security was instrumental in letting his mother live a life of dignity after his father passed away.
Before Social Security was created in 1935, more than 50% of American seniors had incomes below the poverty line, Bauman said. And before Medicare was passed in 1965, more than 35% of seniors had incomes below the poverty line.
“The simple fact is that Social Security and Medicare are the two most successful domestic programs in the entire history of the United States of America, and you know what?” Bauman said. “We need to keep them that way.”
“In fact, we need to expand them,” he added.
To do that, Bauman called for reelecting Malinowski, who is in a hotly contested race against Republican Tom Kean Jr. to represent New Jersey’s 7th Congressional District.

Democratic incumbent Rep. Tom Malinowski of New Jersey participates in a get out the vote event ahead of next month’s midterm elections on Oct. 29, 2022 in Rahway.
Spencer Platt | Getty Images News | Getty Images

Malinowski is “matchless, perfect” with a 100% voting record in favor of New Jersey’s seniors, Bauman said.
At the event, Malinowski decried Scott’s proposal to put federal programs up for renewal every five years.
It takes the Senate about three days to debate and vote on one bill, he noted.
“If you add up all the laws, and multiply by three, they would be there until the year 4000,” Malinowski said.
What’s more, it would mean letting two of the most important laws that established Social Security and Medicare expire, he said.

“We would have to trust Congress to come together and renew them in the form they are in now,” Malinowski said.
It is unclear what his opponent Kean’s stance is on Social Security and Medicare. Kean’s campaign did not immediately respond to a request for comment.
Malinowski may face an uphill battle for reelection, after the district was redrawn and became more Republican.

‘Usually, it’s a lot of lip service to Social Security’

The National Committee to Preserve Social Security and Medicare has also been supporting candidates at events for more competitive races, according to Dan Adcock, its director of government relations and policy.
While that’s in keeping with years past, the difference this year is Social Security has been more of a front-burner issue. That’s due in part to what Adcock calls “inflammatory” comments some Republicans have made about what they would do to the program if they get a majority in the House and Senate.
“It seems like there’s no shortage of Republican candidates or incumbents that are saying the quiet part out loud,” Adcock said. “Usually, it’s a lot of lip service to Social Security and how they think it’s a great program.”
Though the latest Social Security trustees report shows the program has a 13-year runway for how long it can continue to pay full benefits, that is not necessarily prompting the attention to the program in this election, Adcock said.

Polls show Americans are worried about whether benefits will be there for them when they need them. Changes to shore up the program may include benefit cuts, tax increases or a combination of both.
Social Security may be a deciding factor for women 50 and over, a cohort that tends to help decide elections, a recent AARP poll found. While 51% of those voters are undecided, a majority said protecting the program would help them.
DonnaMarie Woodson, 67, a self-described lifelong Democrat from Charlotte, North Carolina, said she is concerned about some candidates’ comments on Medicare and Social Security, which she relies on for retirement benefits, particularly as the cost of living has soared.
“If you think that those are two programs that you should eliminate and feel that you have the right to eliminate, we have a big problem,” Woodson said. “It shows me that you’re not thinking about the people of this country.”

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Series I bonds, an inflation-protected and nearly risk-free asset, will pay 6.89% through April 2023, the U.S. Department of the Treasury announced Tuesday.
Based on the latest inflation data, it’s the third-highest rate since I bonds were introduced in 1998.
However, investors need to consider downsides, such as locking up the funds for one year, and the rate is likely to come down as the Federal Reserve combats inflation.

Jetcityimage | Istock | Getty Images

How I bond rates are calculated

Backed by the U.S. government, I bonds don’t lose value and earn monthly interest with two parts: a fixed rate, which may change every six months for new purchases but stays the same after buying, and a variable rate, which changes every six months based on inflation.
TreasuryDirect announces new rates every May and November.

You can estimate the new variable portion of the rate based on the previous six months’ consumer price index data, which measures inflation.
The Department does not disclose how it determines the fixed portion of the rate, but experts think factors including demand and the yield from Treasury inflation-protected securities influence it. For example, a higher TIPS yield could play into a decision to increase the fixed portion of the rate for an I bond.
While the consumer price index was still relatively high in September, the I bond rate drop reflects a downward trend over the past six months.
Early estimates for the I bond rate were 6.48% based on the inflation figures. However, the new rate includes an increase to 0.4% for the fixed portion of the rate, factoring in higher TIPS yields, Tumin said. The previous fixed portion of the rate was zero.

What the rate change means for older I bonds

If you bought I bonds before the latest rate announcement, the timing of when your rate changes and what it changes to will depend on when your bonds were issued.
For example, if you bought I bonds during September in any given year, your rates will reset each year on March 1 and September 1, according to the Treasury. Bought in June? Look for changes every December 1 and June 1.
The headline rate may be different than what you receive, considering that the fixed rate remains set for the life of your bond.
Someone who bought an I bond in September 2004, for example, has 1% for the fixed portion of their rate. Their composite rate reset to 10.67% in September, and will change to 7.51% at their next reset in March 2023, according to Treasury data.

The downsides of I bonds

While the current I bond rate may be attractive, experts point to several downsides. And some of them are potentially costly.
One of the trade-offs is you can’t touch the money for at least one year. There’s a three-month interest penalty if you cash in the I bond within five years of it being issued. 
Another drawback is lower future returns, explained certified financial planner Christopher Flis, founder of Resilient Asset Management in Memphis, Tennessee.

Depending on future inflation, the variable portion of I bond interest may adjust down again in May. Aiming for 2% inflation, “the Federal Reserve is not going to rest until that number comes down,” he said.
And as interest rates increase, the difference in yields between I bonds and other government-backed assets, such as the 2-year Treasury, is getting smaller. “The relative attractiveness of these assets is dwindling,” Flis said.
Even with excess money after covering other financial priorities — no credit card debt, an emergency fund and your 401(k) match — Flis wouldn’t pick I bonds as the next option.
“Long-term investors, specifically younger ones, should really be looking to the stock market for the backbone of their portfolio,” he said. “Certainly not I bonds.”

Frequently asked I bond questions
1. What’s the current interest rate? 6.89% annually
2. How long will I receive 6.89%? Six months after purchase
3. What’s the deadline to get 6.89% interest? Bonds must be issued by April 30, 2023. The purchase deadline may be earlier
4. What are the purchase limits? $10,000 per person every calendar year, plus an extra $5,000 in paper I bonds via your federal tax refund
5. Will I owe income taxes? You’ll have to pay federal income taxes on interest earned, but no state or local tax

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Deciding at what point you will collect Social Security benefits may be one of the biggest decisions you make in retirement.
You may want to brush up on the program’s rules so that you make the best possible call.
This quiz can help test your knowledge.

Skynesher | E+ | Getty Images

As inflation has pushed the cost of living higher, those eligible for Social Security retirement benefits may be tempted to claim benefits sooner than they had planned.
Social Security beneficiaries stand to get a record 8.7% cost-of-living adjustment in 2023 that will help them contend with higher costs.

But that COLA adjustment alone is not reason to step forward now. Your benefits will still be adjusted for that increase, whether you claim now or later, experts say.
But you should consider the amount of benefits you may receive based on your age. For most people approaching retirement now, age 67 is when they will receive their full benefits based on their earnings history. And if they delay up to age 70, their monthly checks will be even bigger.
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There are other factors to weigh based on your personal situation, particularly if you have a spouse or children who may also benefit from your claiming decision.
Yet many people who are at or near the age when they face that choice may need to brush up on the program’s many rules before they start those monthly checks.

“There are definite rules, definite deadlines and definite dates that need to be met,” said David Freitag, a financial planning consultant and Social Security expert at MassMutual. “Or you could discover after the fact that that oversight was very costly if you’re not careful.”
MassMutual recently gave a true-or-false quiz of 13 questions to 1,500 people ages 55 through 65.

The result wasn’t encouraging: 65% of people either failed or got a D grade. Only 18% of respondents earned a C, while 12% got a B and 6% earned an A. Just 1% of respondents got a perfect score.
To take the quiz, answer whether each of the following statements is true or false. Then check your responses against the key below.
If you find you need to brush up on Social Security’s rules, the agency’s website is a great place to start, Freitag said. MassMutual also has additional information to help you sort through your options.

True or False?

In most cases, if I take benefits before my full retirement age, they will be reduced for early filing.
If I am receiving benefits before my full retirement age and continue to work, my benefits might be reduced based on how much I make.
If I have a spouse, he or she can receive benefits from my record even if he or she has no individual earnings history.
If I have a spouse and he or she passes away, I will receive both my full benefit and my deceased spouse’s full benefit.
Generally, if I am in a same-sex marriage, there are different eligibility requirements when it comes to Social Security retirement benefits.
The money that comes out of my paycheck for Social Security goes into a specific account for me and remains there, earning interest, until I begin to receive Social Security benefits.
Under current law, Social Security benefits could be reduced by 20% or more for everyone by 2035.
If I file for retirement benefits and have dependent children aged 18 or younger, they also may qualify for Social Security benefits.
If I get divorced, I might be able to collect Social Security benefits based on my ex-spouse’s Social Security earnings history.
Under current Social Security law, full retirement age is 65 no matter when you were born.
If I delay taking Social Security benefits past the age of 70, I will continue to get delayed retirement credit increases each year I wait.
Social Security retirement benefits are subject to income tax just like withdrawals from a traditional individual retirement account.
I must be a U.S. citizen to collect Social Security retirement benefits.

Answers

True (89% of respondents answered this correctly)
True (82%)
True (72%)
False (68%)
False (65%)
False (62%)
True (60%)
True (58%)
True (57%)
False (56%)
False (49%)
False (42%)
False (24%)

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The resale business is projected to grow by 80% over the next five years.
High-income shoppers are increasingly turning to the secondhand market as a means to secure hard-to-find luxury items.

Bargain hunting is certainly not new.
But with the Covid pandemic came a surge in “thrifting,” or buying and selling pre-owned goods.

At first, some families under financial pressure looked to secondhand shopping as a way to save. Then it became mainstream.
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So-called recommerce grew nearly 15% in 2021 — twice as fast as the broader retail market and notching the highest rate of growth in history for the industry, according to a 2022 recommerce report by OfferUp.
While the industry is dominated by clothing resale, 82% of Americans, or 272 million people, buy or sell secondhand products, OfferUp found, including electronics, furniture, home goods and sporting equipment, as well as apparel.
Over the next five years, recommerce is projected to grow by 80% and hit $289 billion.

Resale shoppers save money, score exclusive items

Most resale consumers are motivated by value. Thrift-store shoppers save nearly $150 a month, or $1,760 a year, on average, by buying secondhand items, according to a report by CouponFollow.
Saving money, however, is not the only driver, CouponFollow found. Shoppers have also turned to resale for other reasons, such as sustainability and as a means to secure hard-to-find luxury items.
Because it is considered eco-friendly, it’s also become more socially acceptable, said Brett Heffes, CEO of Winmark, the franchisor of stores such as Plato’s Closet, Once Upon a Child and Play It Again Sports.
“When I started in this business, there was a stigma around purchasing previously owned items, and that stigma is gone.”

In fact, sometimes buying secondhand is the only way to score a limited-edition pair of Air Jordans or other highly coveted and exclusive items.
Part of the momentum fueling resale is the desire to gain access to that unique item, added Wells Fargo managing director Adam Davis, who works with recommerce retail businesses, whether that’s “a Chanel handbag or Nike sneakers” — even if you end up paying more than the original retail price.  

‘Affluent consumers are leading the recommerce revolution’

Much of the growth has been driven by younger shoppers, particularly teenagers, Heffes said. “We sell a lot of sneakers.”
Increasingly, however, “affluent consumers are leading the recommerce revolution,” said Chris Richter, CEO of recommerce site FloorFound.
Largely driven by value and a desire to shop in more sustainable ways, “shoppers are looking to purchase resale instead of new,” Richter said.
High-income consumers are even more likely to shop secondhand, according to a poll of more than 1,000 adults by FloorFound: Nearly 9 in 10 shoppers making more than $175,000 a year have previously bought a resale item — 14 percentage points higher than the survey average.
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The cash option for this jackpot is $497.3 million, less than half the annuitized value.
Higher interest rates are making it possible for Powerball to fund larger annuity prizes, but the lump sum is based on ticket sales, according to the game’s operator.
Both routes would result in taxes taking a big slice of the winnings.

Gene Blevins | Reuters

The jackpot for Powerball’s Monday night drawing is a whopping $1 billion.
Sort of, anyway.

The advertised number represents the pretax amount you’d get if you were to receive your windfall as an annuity spread over three decades. Yet most jackpot winners choose the upfront one-time cash payment — which, for this drawing, is less than half the annuitized amount and also is a pretax figure: $497.3 million.
The annuity option is higher than it has been, relative to the cash option, due to higher interest rates that make it possible for the game to fund larger annuitized prizes, according to the Multi-State Lottery Association, which runs Powerball. The cash option, however, is driven by ticket sales.
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Almost $120 million would be shaved off the top

So what would you pay in taxes if you were to beat the odds and land the jackpot?
Assuming you were like most winners and chose the cash option, a 24% federal tax withholding would reduce the $497.3 million by $119.4 million.

Yet more would likely be due to the IRS at tax time. The top federal income tax rate is 37% and this year applies to income above $539,900 for individual tax filers and $647,850 for married couples. Next year, the top rate is imposed on income above $578,125 (individuals) and $693,750 (married couples).

This means that unless you were able to reduce your taxable income by, say, making charitable donations, another 13% — or about $64.7 million — would be due to the IRS. That would translate into $184.1 million going to federal coffers in all, leaving you with $313.2 million.
State taxes could also be due, depending on where the ticket was purchased and where you live. While some jurisdictions have no income tax — or do not tax lottery winnings — others impose a top tax rate of more than 10%.

Nevertheless, the winner would end up with more money than most people see in a lifetime or two. 
And, of course, you probably won’t need to worry about how much the jackpot really would deliver — the chance of a single ticket matching all six numbers drawn in Powerball is about 1 in 292 million.
Meanwhile, Mega Millions’ jackpot is $87 million ($42.8 million cash) for Tuesday night’s drawing. The chance of your ticket hitting the jackpot in that game is roughly 1 in 302 million.

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