5 Things to Know Before Giving Lottery Tickets as Holiday Gifts

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This popular holiday stocking stuffer is overrated. Here are five reasons why. 

Lottery tickets and scratch-offs are popular stocking stuffers, and it’s easy to see why. Who wouldn’t want to start the new year off with a huge windfall? But while we all like to dream about ourselves or someone close to us winning the top prize, the reality of playing the lottery isn’t all that rosy. Here are five things you should know before purchasing lottery tickets for yourself or someone else this holiday season.

1. You’re probably throwing your money away

This probably won’t come as a shock to you, but your odds of winning the lottery are not great. Current Powerball odds are 1 in 292,201,338, and Mega Millions odds are even worse. Scratch-off tickets have better odds (and lower prize amounts), but they’re still pretty low.

That doesn’t mean you can’t play if you understand the risks, but don’t expect too much. And don’t spend more than you can afford to lose.

2. Wins aren’t as valuable as you’d expect

Even if you or a loved one wins the jackpot, you’re going to take home a lot less than the top prize. Large jackpots like Powerball and Mega Millions won’t give you the full prize amount if you claim the lump sum, which many people do. And then there’s that little thing called taxes.

If you win millions, you will wind up in the highest tax bracket where you’ll pay 37% of your winnings back to the federal government. And your state might take a slice too. Even if you win a smaller amount, it could still be enough to bump you up to a higher tax bracket, and that means more money for Uncle Sam and less for you.

3. The prize doesn’t belong to the ticket purchaser

A lottery ticket is a bearer instrument, which is legalese for “property that belongs to whoever has it in their possession.” So if you generously gift a ticket to a friend or family member and they win big, it belongs to them. It doesn’t matter that it was your hard-earned cash that purchased it.

If they take home the big bucks, they’re under no obligation to share with you. And if that’s a problem for you, you might prefer to hold onto that ticket yourself. Buy your friend something else instead.

4. It’s not that easy for winners to share

So you’ve made a pact with your friend or relative that if either of you wins, you’ll split the money. That solves the above problem, doesn’t it? Not exactly. The gift tax limits people from giving away more than $17,000 per person in 2023 and $18,000 per person in 2024. Give more than that and you’ll need to report it to the IRS. It will also count toward your lifetime gift limit ($12.92 million in 2023 and $13.61 million in 2024). Expect to pay taxes on the gift if you exceed your lifetime gift limit.

People have successfully split lottery wins in the past, but you’ll have to pay lawyers to help you do this. If one person claims the ticket on their own, all that money legally belongs to them, as described above.

5. There are better ways to give cash for the holidays

A lottery ticket is a worthless piece of paper more often than not. If you’d rather give your family or friends a sure thing, go with cash or a gift card instead. Or if you want to make a lasting impression, consider putting money in a college savings fund, a brokerage account, or even gift them stock shares directly. These things are much safer paths to wealth and strong personal finances than playing the lottery.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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