Mega Millions cash payout option versus lump sum

Every lottery has at least a winner or more than one winner as the case may be. Once a winner has been announced the next obvious thing is the payout. There are two kinds of payment options and sometimes winners may be uncertain as to which payout option is the best.

As a winner of a Mega Millions Jackpot should you chose to be paid in a lump sum or the annuity value. Every lottery winner must make an important decision before they can collect jackpots. This is where they decide if they are collecting all their winnings once or over a long period. To understand this better let’s take a look at the cash out options.

Lump Sum

As it state is a one-time payment that is the exact amount of the cash in the Mega Millions jackpot prize pool. The winner would be given this one at once. It would not be broken down but the exact amount as won.
The lump sum payout option as some advantage. Winners that choose this option can avoid long term tax in the sense that if the money were to be paid over a long period. Mega million lottery is subject to federal tax. Choosing this option means it would only be taxed once and the winner can do with the cash as desired – invest, spend or donate.

Annuity Option

For Mega Millions lottery payout in an annuity, the payment is paid immediately at once with subsequent annual payment over some time usually 29 years payment at certain percentage normally at 5% which is higher than the previous payment.

This option is established by lottery commission and often called lottery annuities. In practical, it is a contract created to distribute the prize money over some time.
It is also considered a safe option especially for the winner with habits of spending without a plan. This way winners get to protect their money rather than spend their lump sum at once.
Many lottery companies offer both lump sum and annuities. Mega Millions also does this. As mentioned earlier, they offer an initial payout then followed up by several instalment annual payments 29 times with a 5% increase at every annual payment higher than the former years’ payment.

If you played online

If you have bought your ticket with an online lottery service because you do not live in the US, bear in mind that foreigners will have 30% of their winnings deduced for taxes. That rule only applies if you win more than $1 million.

Winners are people of habit and not everyone is financially conscious nor have a good plan to spend their rewards. Some may squander their lump sum of paid at once or fun into financial trouble form their spending habits to end up in bankruptcy.
Annuity as its pros and also its con. Some of the con include that it is not flexible. People would like flexibility. This means that once a winner chooses the annuity payment, such winner cannot at any time change the payout options and term to a lump sum no matter the situation.

In terms of a large investment that could have been achieved easily with a lump sum, an annuity may not provide such. Lastly, because each payment is subject to tax, the payment could reduce to unforeseen circumstances that could increase the tax percentage on the payout.