What is the Difference Between Cash and Annuity Lotto Jackpots?

Friday November 24th 2017 What is the Difference Between Cash and Annuity Lotto Jackpots?

Exciting multi-state lotteries like Powerball, Mega Millions and Lotto America offer gigantic jackpots in every drawing, but have you ever noticed that many players do not receive the full, advertised amount?

The reason for this is that the headline figure is what a jackpot winner would receive if they accepted the prize in 30 installments over 29 years, and the cash amount is the value of the jackpot fund on the day of the drawing. 

How an Annuity Jackpot Works

If you accept the annuity jackpot for a game like Mega Millions, you receive an upfront sum, followed by 29 further annual payments, each increasing in value to keep up with the rise in the cost of living. After 29 years, the total paid out equals the advertised jackpot for the draw.

This is achieved by the lottery investing the jackpot pool from that particular draw over the course of 29 years. The jackpot is calculated by taking the amount in cash from ticket sales for the top prize tier and then working out the expected return on the purchase of government bonds.

Taking Cash Lotto Jackpots

Most lottery fans choose to accept the cash option, which is generally around 37 percent lower than the full annuity value. For instance, the advertised jackpot for this Saturday’s Lotto America drawing is $15.57 million, with a cash value of $9.78 million.

There are many reasons behind this decision; it could be that the winner thinks they can make an even better financial return than the lottery, or simply that they want to be able to go out and buy the mansions, airplanes and supercars that many believe go with the millionaire lifestyle, which may not be feasible due to the size of the annual payments.

Should I Take the Cash or Annuity Option?

The option you accept depends entirely on your situation and your individual needs. Either way, you should take expert legal and financial advice before making your decision.

You may be able to make a better return than the lottery, but while the official annuity is guaranteed to pay out, any investment you make could prove more risky.

You also have to consider tax implications too - are you willing to take one big hit for Uncle Sam at the end of the year in which you claim your cash payment, or are you happy to pay tax on the installments for the entirety of the annuity? A tax expert will be able to help you out with costings if you ever find yourself in this happy predicament.

What Happens to the Annuity if I Die Before it Finishes?

As with any asset, a lottery annuity becomes the property of your estate, or of a beneficiary designated by you, if you die before it has run its course. Most state lotteries continue to pay the estate in annual installments, although some allow it to apply to receive the balance in one final payment.

This Weekend’s Lottery Jackpots

There is a bumper weekend of jackpots available to play for, however you choose to accept the payout. Powerball fans can pick up $149 million ($93.6 million in cash) on Saturday, while Mega Millions fans are playing for $119 million ($75 million cash) tonight.

Play at authorized retailers in any participating state, or choose your numbers online if you want to avoid the lines at the terminals. Good luck.


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