How to Accept a Lottery Jackpot

If you’re a lotto player, it’s likely that you have dreamed about what you would do with a large cash payout. The chances of winning a lottery jackpot are actually much less likely than they were 10 years ago, according to economist Victor Matheson, but that hasn’t stopped people from buying tickets. “Human beings just fundamentally have a very difficult time understanding risk when we are talking about things that are so rare,” he says. That basic misunderstanding works in lotteries’ favor, and it explains why you see billboards on the highway that proclaim the mega-sized Powerball and Mega Millions jackpots.

The advertised jackpots for these two multi-state lotteries are based on annuities, which means they are calculated based on how much money you’d get if the current prize pool were invested in an annuity over three decades. This means that when interest rates rise, so do jackpot totals.

But what’s also important to note is that when it comes to the actual prize money, most winners choose the lump sum payment option over the annuity one. This is because they can sell the future payments to investors and come away with more than twice as much in the end.

Regardless of how you decide to accept your prize, the Lottery will withhold federal and state taxes from the winnings at current withholding levels, which will be deducted from the total amount of your payment. Winners should always consult with a tax professional before making any decisions on how to receive their prize.