Lump Sum vs. Annuity: How Jackpot Payouts Work

Every Powerball and Mega Millions jackpot comes with a choice of two payouts. The cash option is a single payment. The annuity is 30 payments spread over 29 years. The advertised jackpot is the annuity total, so the cash option is always the smaller number. Taxes are withheld either way.

What the advertised jackpot really means

Mega Millions says the cash option “is equal to all the cash in the Mega Millions jackpot prize pool.” The annuity is built from that same cash plus the 30-year U.S. Treasury rate. The advertised figure is the total paid out over 30 payments.

Powerball adds that interest rates play a part. It calls this the “annuity factor”: the rates on the securities bought to fund the payments. When rates are higher, the advertised jackpot is higher.

The gap can be big. The cash value is often well under half of the advertised jackpot, and the official game sites list both figures for every upcoming draw.

The Texas Lottery FAQ explains where the cash figure comes from. The lottery works out what it would cost to buy the 30-year investment that funds the annuity. A winner who takes cash gets that amount, the “net present value,” and the investment is never bought. That’s why the cash value for the same advertised jackpot moves with interest rates.

How the annuity is paid

• Mega Millions: one payment right away, then 29 yearly payments. Each payment is 5% bigger than the one before, which Mega Millions says helps protect buying power when prices rise.
• Powerball: Powerball.com describes the annuity as “30 graduated payments over 29 years.” The Powerball pages we checked don’t give the yearly increase, so the official Powerball FAQ is the place for details.
• If the winner dies: Mega Millions says it keeps making the yearly payments on schedule to the winner’s named beneficiary or estate.

Other games work differently. The Florida Lottery pays Florida Lotto, Mega Millions and Powerball jackpots in 30 yearly installments, and Jackpot Triple Play jackpots in 25.

When you choose

Each state lottery sets its own deadline for this choice. Two examples:

• Florida: You have 60 days to choose the cash option. If you don’t choose it in time, you get yearly payments. Florida also says your choice is final once you make it.
• Texas: The Texas Lottery FAQ says you make the choice when you buy the ticket, and you can’t change it later. The lottery says this policy follows IRS rulings on how jackpots are taxed.

Your state’s rules are on our state pages.

Taxes on each option

Federal income tax applies to either choice. The Florida Lottery notes that federal taxes are withheld whichever payout you pick. The IRS says each installment payment gets the 24% federal withholding if the total prize will be more than $5,000, even when a single payment is $5,000 or less.

That 24% is a prepayment, and big winners often owe more when they file. Our guide on how lottery taxes work explains why, and our tax calculator lets you compare both options.

What to weigh

A few things to consider (this is general information, not financial advice):

• Size: The cash option is smaller than the advertised jackpot, sometimes by more than half.
• Timing: Cash arrives at once. The annuity arrives once a year for 29 years after the first payment.
• Flexibility: With cash, you receive everything up front. With the annuity, the lottery pays on a fixed schedule. In Texas, selling or assigning future payments requires a court order and other steps under state law.
• Your heirs: Mega Millions annuity payments continue to your beneficiary or estate if you die.
• Your team: The Florida Lottery suggests building a team of advisors before you decide. A tax professional and a lawyer can explain how each choice fits your situation.

For current jackpot estimates, see our Powerball and Mega Millions pages.