Should Powerball lottery winners take lump sum prize or annuity payments? What to know
The Powerball jackpot reached a record-high $1.73 billion after no one claimed the top prize on Monday’s drawing.
If a winner is announced on Wednesday, it would be the second-largest Powerball prize ever. The odds of hitting the jackpot are 1 in 292.2 million, according to lottery officials.
Winners of the record-setting jackpot can opt for 30 annuity payments over 29 years, or choose to receive the prize all at once.
Unfortunately, the winner would also be faced with some pretty hefty taxes if they choose the lump sum.
The cash option for this jackpot is $756.6 million, according to Powerball, but a winner from North Carolina would only take home a mere $437 million after taxes.
Although federal and state taxes can significantly reduce lottery winnings, there are some benefits to taking the lump-sum payment.
Are lump-sum payments the best option for lottery winners?
If a lottery winner chooses to collect their winnings in a lump sum, it gives them the opportunity to invest in high-yield financial options, like real estate and stocks, according to Annuity.org, an online resource for information about annuities.
Lump sum payments can also help winners avoid long-term income tax implications.
However, those who elect to receive their winnings in annuity payments, or payments that are divided and issued over a fixed period of time, can end up with more in the long run.
In 2014, Vinh Nguyen, a California nail technician, was the sole winner of a $228.4 million Powerball jackpot. He chose to receive the money in annuity payments over 30 years, where he will receive the full amount, instead of the lump sum, which would have given him $134 million.
Annuities can also prevent winners from spending all of their money after receiving a lump sum, but since they are fixed payments, winners cannot adjust the payout terms if a financial emergency arises.
Though many believe the government keeps the money, annuity payments are generally passed to a winner’s heirs if they die, according to Annuity.org. In this situation, the remaining assets are distributed to a living beneficiary, or to an estate where the money can be disbursed to a group of beneficiaries.
This story was originally published October 10, 2023 at 1:44 PM with the headline "Should Powerball lottery winners take lump sum prize or annuity payments? What to know."
