LOTTERY
How to collect $1.13 billion Mega Millions jackpot: annuity or cash option?
One lucky ticket is in line for the fifth-largest windfall in the game’s history and can choose to take their winnings in instalments or as a lump sum.
The Mega Millions jackpot has soared in recent weeks with a run of roll-overs and greater interest pushing the top prize into ten figures. Tuesday’s draw for a $1.13 billion jackpot is believed to have resulted in a single winning ticket in New Jersey, with the lucky owner set to receive the fifth-biggest windfall in the game’s history.
The winning numbers were 7, 11, 22, 29, 38 and Mega Ball 4.
But despite the headline figure of $1.13 billion, the winner will only be able to claim half of that as a lump sum payment. Lottery winners are typically given the option of claiming the full amount over a period of annual payments or a single one-off windfall, typically 50% of the advertised jackpot.
If you ever find yourself pondering how best to claim your fortune, here’s everything you need to know...
Is it better to claim lottery winnings in instalments or a lump sum?
In the Mega Millions draw, as is the case in many other lotteries, winners can choose to be paid their money in instalments (the annuity option), or as an up-front lump sum (the cash option).
The winner of Tuesday’s $1.13 billion draw will be able to receive the full amount in a series of 29 annual payments. These instalments grow in size by 5% every year. If the winner would rather pocket their prize in one single payment they will have to settle for a reduced amount. For Tuesday’s draw, the cash option is an estimated $537.5 million.
In both cases these are gross amounts. That means that lump-sum recipients will face a one-off tax bill, while annuity recipients will have to contend with levies every time they receive one of their yearly instalments going forward.
As a result, choosing the cash option may prove more straightforward when it comes to fulfilling your tax obligations. It also allows winners greater flexibility in how to use their money for major investments, such as stocks and real estate. On the other hand, the annuity option gives recipients a larger post-taxes slice of the jackpot and protects them from blowing their winnings right away.