LOTTERY: SHOULD YOU TAKE THE CASH PAYOUT?

While $1.6 billion is the number that’s being advertised, Mega Millions won’t be handing over a check for that amount to the winner. Whoever holds the winning lottery ticket will be given two options: They can collect their winnings as a one-time lump sum that’s less than the value of the total jackpot (in this case, it would be $904,900,000), or they can receive the full amount in annual installments stretched out over 29 years. Winners who choose the installment or annuity plan will be given one large payment upfront followed by checks that grow by five percent each year.

… Collecting the money and running is tempting, and it’s the option that most lottery winners end up choosing. But according to money experts, that’s the wrong move — not only because you’re getting less money in the long run, but because it leaves you vulnerable to bad luck and poor financial planning. Even Shark Tank investor Mark Cuban agrees that annuity is the safer bet. In 2016, he told the Dallas Morning News that it helps winners avoid blowing all their winnings at once.

… The tax bite on the $1.6 billion Mega Millions jackpot:

  • Lump sum option: $904 million
  • 24% federal tax withholding: less $217 million
  • 13% more (difference between 24% and top tax rate of 37%): less $117.5 million
  • State tax of 0% to 8.82%: less 0 to $79.7 million
  • After-tax bottom line: $489.8 million to $569.5 million
 
 

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