Mega Millions stands as a beacon of colossal aspirations and unimaginable dreams. Unlike other lotteries, Mega Millions has earned its name in history by offering not just millions but sometimes billions of dollars in jackpot prizes. Sometimes jackpot winners are met with a dilemma: either opt for the lump sum or embrace the allure of the cash payout. So which is better, a Mega Millions lump sum or the cash payout?
Let’s first look at the Mega Millions tax Implications
Since this lottery is US-based, some tax regulations are in place. Either payment option has an automatic 24% federal withholding tax on all winnings. However, if you win an income of $578,126 or more, you will be taxed at 37%.
There is also another tax regulated called the state tax. This depends on which state you live in and mostly varies from 2.9% to 10.9%. Eight US states do not count lottery winnings as income, so your winnings will not be taxed in these states.
The Lump Sum Option
Opting for the lump sum means that the Mega Millions winner receives the entire jackpot amount in one substantial payment. This choice is tempting for those who value immediate access to their winnings and want to take control of their financial future without waiting for annuity payments.
Example: Let’s say the Mega Millions jackpot is a staggering $820 million and was won in California, a state that does not tax state taxes. If the winner chooses the lump-sum option, they might receive approximately $266 million of the total jackpot. This lump sum is after the federal taxes have been reduced.
Cash Payout or Annuity Option
On the other hand, the cash payout option involves receiving the jackpot amount in a series of annuity payments over a specified period, usually 30 years. The jackpot is divided into 30 payments.
Example: Using the same $820 million jackpot, the winner might receive annual payments of around $17.3 million (the exact amount varies). Over the next 30 years, the total payout would equal the full jackpot of $518 million.
The annuity option is the best payment option to consider when receiving large jackpot prizes. It is considered the safest option as it guarantees a stable income for a long period compared to the lump-sum option.
However, whatever option you choose, make sure to consult a financial professional. In the end, whether you choose the Mega Millions lump sum or the cash payout for long-term financial security, make sure to plan for your Mega Millions fortune.