I Won a Million Miles, Now What?

Dear Tim,

I have just won 1,000,000 miles on American Airlines in a contest and was wondering what the heck to do with them. Our family of four loves to travel, but we’d really have to get moving to use these up. Is there a way to safeguard them? Can I get any perks at the counter or should I just expect more junk mail from magazine clearing houses. Would you imagine I qualify for platinum status, or would I actually have to have flown all those miles? My experience with these programs is limited to cashing out every 25K for a free flight. Any ideas or suggestions would be appreciated.

Cassy T.

[In a follow-up to Cassy’s original question, I asked her what her understanding of the tax status of the mileage prize was. She responded that the value of the miles, as reported to the IRS, will be $22,000.]

Dear Cassy,

First, congratulations. Yours is a problem we’d all like to have.

A little math to begin with…

My local tax pro tells me that the value of the award will be taxed according to the same formula as regular income. So using 35 percent as an approximation of your actual tax rate, you’ll be out of pocket for $7,700 for those miles.

The first question: Will you be able to realize at least $7,700 in value in the course of redeeming those miles? And yes, you should be able to do so easily. (Don’t laugh. In some cases, the cost to accept a “prize” turns out to be prohibitively high, in which case it pays to just walk away.)

How to use the miles? There are two broad strategies to choose between: maximize trips, or maximize comfort.

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If you decide to squeeze as many trips as possible from the miles, you could redeem them for 40 round-trip PlanAAhead awards (at 25,000 miles each) for coach travel within the U.S. That’s 10 trips for your family of four. Or perhaps throw in a few overseas trips, also using restricted coach awards.

At the other extreme, you might cast temperance to the wind and use the miles to travel first class all the way. You could, for example, cash in all your miles for four AAnyTime first-class tickets to Europe.

Of course, there’s no reason why you can’t combine the above two approaches, mixing some domestic coach awards with a “trip of a lifetime” (maybe a second honeymoon?).

[If you don’t yet know the difference between PlanAAhead and AAnytime awards in American’s program, you’ll want to familiarize yourself with the distinction. Briefly, and most importantly, PlanAAhead awards are “capacity-controlled,” indicating that there are a limited number of them available on any given flight, while AAnyTime awards are unrestricted. You will typically pay twice as many miles for the latter as for the former.]

For some general pointers on award travel, have a look at the relevant chapter in the Joy of Miles series.

Bearing in mind that air transportation is only part of the cost of a trip, you might also want to consider converting some of your miles to Hilton HHonors points, which can be redeemed for free hotel stays.

Your winnings will not count toward earning annual elite status. However, American awards AAdvantage lifetime Gold status to anyone who has earned one million miles or more, in any way (not just flights), over the entire life of their membership. So unless there is a provision in the sweepstakes rules to the contrary, your award entitles you to Gold for life. Which is better in my estimation than Platinum for a single year.

As far as safeguarding your winnings, I presume your concern is the bankruptcy and liquidation of American Airlines, and the disappearance of your miles.

The only way to get full value for your miles is to redeem them for award tickets, and then actually use those tickets. You can also insure the miles, up to a value of $7,500, through AwardGuard. The cost is $119 per year.

Enjoy!