Mega Millions Payouts: Lump Sum or Annuity?

Winning a lottery prize is always exciting but winning a lottery jackpot would be absolutely amazing. When you play Mega Millions, you have a chance at winning a lottery jackpot that could possibly be historic, considering that Mega Millions awarded a $1.602 billion jackpot in August 2023. But, how much of the prize do you actually get when you win?

The final amount of your jackpot prize, if you’re lucky enough to win it, depends on several factors. The most significant factor determining how much you will receive is whether you take the Mega Millions lump sum cash payment option, or whether you choose to receive your prize in Mega Millions annuity payments. One more important piece of information you'll need to know is how long does it take to receive lottery winnings.

It should be noted right from the start that these two choices – lump sum or annuity – are only available with the jackpot payout. All Mega Millions secondary prizes are paid out as a one-time cash payment.

What Is the Difference Between a Cash Payment and Annuity Payments?

Cash option - This is a one-time payment of the prize that is equal to the cash in the Mega Millions jackpot prize pool. For example, in a draw where the estimated Mega Millions jackpot is $124 million, the cash option prize is approximately $99.9 million. These prizes are estimated because the final amount depends on actual Mega Millions ticket sales. It is important to remember that the advertised cash option prize is before the deduction of taxes. The amount of taxes to pay will vary based on the jurisdiction where the winning ticket was purchased.

The Kansas Lottery defines the lump sum cash payment as being “the amount available to the Lottery for the jackpot prize pool. It is approximately half the estimated annuity option jackpot, depending on current interest rates. This dollar amount represents the same amount of money the Lottery would have invested in an annuity."

Most Mega Millions winners opt to receive a one-time, lump-sum payment of their prize.

Annuity payments – These are payments of the prize made on an annual basis. The first of the payments is made shortly after a jackpot win has been confirmed while the rest of the prize is paid out in 29 annual instalments. The yearly payments are not equal but rather graduated, meaning each one is 5% bigger than the previous one. The total amount of the payments, over the course of 30 years is equal to the final jackpot prize of the draw.

The jackpot amount advertised by Mega Millions is the annuitized amount. In the case of a jackpot advertised as $124 million, this is the amount that will be paid out over 30 years, less taxes.

Why Choose the Cash Option for the Mega Millions Jackpot?

Winners who choose a lump-sum payout of their prize can avoid long-term tax implications, as all their taxes would be paid at the time they receive the prize. Having all the money upfront gives the winners the opportunity to make large investments that will result in a much higher return than if the prize had been taken over thirty years.

According to Brad Tuttle, writing on Money.com, ”the math is fairly clear on whether lottery winners should take the annuity or lump sum: The lump sum is the better deal, assuming you don’t blow most of the money in a hurry and invest at least a big chunk of it instead.”

There are many stories of lottery winners who lost all their money after a very short time. They wasted their newfound fortune and, in some cases, ended up worse off than they were before they won a lottery jackpot. Taking the prize gradually could have prevented this from happening.

A jackpot winner would be wise not to make any decisions without consulting first with a team of financial, legal, and tax advisors.

Why Choose Mega Millions Annuity Payments?

Receiving a jackpot prize in annual, graduated payments protects the lottery winner’s lifestyle and makes sure that they don’t spend their prize all at once. Thirty annual payments provide long-term financial security.

While there is still a risk that the winner would spend all their winnings each year when the prize money is received, the financial consequences of this type of action is limited. Annual payments of the prize are guaranteed for a very long period of time.

There is no danger that the prize will not be collected in full if a jackpot winner dies before the last of the 30 payments. According to the Minnesota Lottery, “Payments continue to the winner's estate until exhausted. The Lottery also permits the estate to request that all remaining payments be paid immediately to the estate. This permits the estate to pay inheritance taxes immediately, avoiding any penalties, and to distribute the remainder to the heirs.”

Consulting with a team of financial advisors to decide how to manage annuitized Mega Millions income over the course of 30 years is very important.

When Do You Choose Cash or Annuity?

When you, or your representatives, arrive at the offices of the state lottery to claim your prize, you will need to decide whether to take the one-time lump sum cash payment of the Mega Millions jackpot, or whether to receive the prize in thirty annual payments. You will inform lottery officials of your decision and receive the jackpot money accordingly.

In some states, such as Texas, you must select how you want to receive your jackpot prize already at the time you purchase your tickets! You are required to mark the appropriate box next to "Grand Prize" on the Mega Millions ticket - either "30 annual payments" or "cash value option". According to Texas Lottery rules, "You may not change the payment option at a later date. If you do not select a payment option, your playslip will be rejected."

What’s Right for You – Cash or Annuity?

Although you may be tempted to take your Mega Millions payout all at once, as one lump sum cash prize, that might not be the best option for you. That is why it’s important to have advisors to help you make a decision. No matter which way you go, you must still act responsibly and use the prize money wisely!

For more information about Mega Millions, check out our handy Mega Millions Guide or read about cash versus annuity payment options. Once you know all you need to you can purchase your lottery tickets online.