Lump Sum or Annuity? How Jackpot Payouts Work

The jackpot figure you see advertised for Powerball and Mega Millions isn't the amount a winner can take home in one go. It's the total of an annuity paid over decades. Here's how the two options work. This is general information, not financial advice.

The annuity

For Powerball and Mega Millions, the annuity is 30 payments over 29 years: one straight away, then one a year. Each payment is 5% bigger than the last, so the payments grow over time. Add them all up and you get the advertised jackpot, before tax.

The cash option

The cash option, or lump sum, is the money actually in the prize pool today, which is what would be invested to fund the annuity. It's always less than the advertised figure, often around half, depending on interest rates. When rates are high, the cash option is a smaller share of the headline number.

"For life" prizes

Millionaire for Life works differently. Its top prize is $1,000,000 a year for the rest of the winner's life, and second prize is $100,000 a year for life. Each has a fixed cash alternative instead of a rolling jackpot. Check the official game rules for how the payments and the cash option work.

Tax

Lottery prizes are taxable income in the US. Large prizes have federal tax withheld when they're paid, and the final bill can be higher. Most states tax winnings too, and a few don't. The rules vary, so for a big win, get professional advice before you choose.

Which is better?

There's no single answer. People who take the lump sum usually want control and the chance to invest it. People who take the annuity often value a guaranteed income and some protection from spending it too fast. You usually have to choose within a set time after claiming, so it's worth thinking it through early. The claim window is on your ticket and on your state lottery's site.