Mega Millions $1.55 billion jackpot: What’s the best payout option?

The Mega Millions jackpot has grown massively since the jackpot was last won in April; and now, the prize has rolled over to total $1.55 billion, which is the biggest purse in Mega Millions history, and the third largest in the history of US lotteries.

How to play Mega Millions

A Mega Millions ticket costs $2. To play, you have to choose six numbers from two separate pools: five main numbers between 1 and 70, plus a Mega Ball number from 1 to 25. To win the jackpot, all six numbers must match those that are drawn. If multiple participants get every number right, the prize is shared.

Annuity option vs cash option

In the very unlikely event that you become a potential billionaire after tonight’s drawing (odds are more than 300 million to 1), you will be faced with an important choice. Winners can choose to be paid the prize in 30 yearly installments (the annuity option), or as an up-front lump sum (the cash option). But which alternative is better?

If a single player secures the jackpot in the next Mega Millions draw, which takes place on Tuesday 8 August, they will be able to claim the full $1.55 billion if they opt to receive their winnings in annual payments. These installments grow in size by 5% every year. If the winner would rather pocket their prize in one fell swoop, they will have to settle for a much-reduced amount which comes to about half the jackpot total. For Tuesday’s draw, the cash option stands at $757.2 million.

In both cases, these are gross amounts, meaning they have yet to be taxed. 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 installments.

The cash option

As a result, choosing the cash option may prove more straightforward when it comes to fulfilling your tax obligations. It also allows winners greater immediate ability to use their money for major investments, such as stocks and real estate.

The downside of this is that it’s also easier to blow all your winnings in a shorter amount of time, which has happened to many lottery winners in the past. Between the temptation to overspend, friends and relatives asking for a share of the pie, and making bad investments, it is possible to become even poorer than you were before you won the jackpot.

If you are not used to investing or handling huge amounts of money, it is highly likely that you will make financial mistakes and run through your fortune faster than you ever imagined. Most winners have chosen the lump sum option, which may not be the best decision. According to the CFP Board of Standards, nearly one-third of lottery winners eventually declare bankruptcy. It might be best to follow Shark Tank investor Mark Cuban’s advice to take the more prudent annual payment scheme.

The annuity option

The annuity option gives recipients the total amount indicated by the jackpot (before taxes), and although the winner would have to deal with taxes every year when they receive their installment, they do get a larger post-taxes slice of the jackpot. More importantly, it protects winners from blowing their winnings right away.

The newly rich lottery winner would have time to correct any financial errors they may have committed in the early days of becoming a multi-millionaire, since they have decades of receiving considerable sums.

Where in the US is Mega Millions played?

Mega Millions is played in every state in the US except Alabama, Alaska, Hawaii, Nevada and Utah. It is also played in the District of Columbia and the Virgin Islands. Draws are conducted every Tuesday and Friday at 11 p.m. ET / 8 p.m. PT.