What is the mega millions annuity vs lump sum?
If you win big with mega millions there are two main ways to collect your gains, either annually or as a lump sum. We looked at the pros and cons of both.
Mega Millions is a lottery game in forty-five states, the District of Colombia, and US Virgin Islands. Winners are announced at 11:00 pm ET on Tuesday and Friday nights.
If one is to win they can decide between two distribution methods. The first allows a winner to receive the funds as a lump sum, the other would distribute them in annual payments. Depending on which you choose the winnings are taxed at different rates.
Some state regulate the ways in which payments can be distributed, and some even require that those who purchase tickets determine how they would want to receive their winnings at the point of ticket purchase.
The pros and cons of receiving a lottery lump sum payment
According to the Mega Millions website, a lump sum or "cash option" allows winners to receive a "one-time, lump-sum payment that is equal to the cash in the Mega Millions jackpot prize pool."
One of the main advantages of receiving a lump sum payment is that you are only subjected to taxation one time. If you were to receive them the payments over the course of many years, the tax law could change, and the money that you win, will be worth less in thirty years. Governments know that the lump sum option can help to evade higher taxes on winnings over the long-term and for that reason, many lump summers usually pay more taxes in the long-run.
This opinion would also be better for someone hoping to use their winnings to invest.
The pros and cons of receiving a lottery annual payments
The annual option allows for payments to be made over thirty installments, "one immediate payment followed by 29 annual payments." This option is designed to "protect winners’ lifestyle and purchasing power in periods of inflation," by slowly increasing the value of the payments by five percent.
While most lottery winners opt for the lump sum, there is one advantage to the annual payment plan. The winners are typically applied an interest rate similar to that of what could have been gained had the funds been invested. One organization that advocated for the annual option, Annuity.org, pointed to the case of a nail technician in California Vinh Nguyen who in 2014 one $228.4 million through the Powerball drawing. Had he opted for a lump sum he would have received “$134 million. Instead, Nguyen opted for the annuity. That will give him the full $228,467,735 jackpot paid out over 30 years."