The Mega Millions jackpot is an astonishing $1.6 billion, and it could go even higher if no one picks the winning six numbers for the next drawing on Tuesday, October 23.
The billion-plus jackpot is the largest in history. Previously, the largest lottery prize of all time was the $1.586 billion Powerball pot in January 2016.
“It’s hard to overstate how exciting this is – but now it’s really getting fun,” said Gordon Medenica, lead director of the Mega Millions Group, in a statement.
Millions of Americans are dreaming of what life would be like if they became a billionaire overnight. But whoever the lucky winner is, they won’t be taking home $1.6 billion in one fell swoop.
The lump-sum Mega Millions payout is $905 million
Big-time lottery winners usually have two choices when collecting their winnings. They can either choose a lump-sum payout or an annuity.
The lump-sum payout – a big, one-time check – is the most popular option, at least when it comes to the Powerball. Winners seem to want a huge windfall. But if you choose the lump-sum, you don’t get the full jackpot amount. Your Mega Millions payout wil be $905 million – the total amount of money in the Mega Millions prize pool.
The average annuity payment is $53.3 million
The Mega Millions winner can also select the annuity option, where payments are spread out over three decades. Each annual payment grows by 5%, which is supposed to account for inflation. If you choose the annuity, you’ll get the full $1.6 billion, but you’ll have to wait for three decades to claim it all.
For the $1.6 billion jackpot, the average annuity payment is $53.3 million, according to USA Mega, a lottery website. Payments start at about $24 million and rise to $99 million at the end of the payout period.
Taxes and the Mega Millions payout
Whether the Mega Millions winner chooses the lump-sum or annuity, he or she will have to give up a portion of their winnings to taxes.
Your payments will be reduced by 24% right away thanks to federal tax withholding. For the lump-sum payout, that’s a $217 million cut, reducing your haul to $687 million. Plus, that huge windfall would subject you the nation’s highest federal income tax rate of 37% on all income over $500,000. That would shave another $117.5 million off your winnings, according to CNBC.
Then there are state taxes. In some states, you’ll pay nothing. But in others, you’ll pay more tax on your lottery winnings, up to 8.82% in New York.
In the end, you’d walk away with between $489.8 million and $569.5 million. That’s a lot of money, but you wouldn’t be a billionaire.
A person who chooses the annuity immediately loses $5.8 million to the 24% federal taxes. Additional federal taxes and any state tax would take a further bite.
Which is better, lump-sum or annuity?
If you are lucky enough to win, should you take the lump-sum or the annuity? Many people urge winners to take the annuity. Annual payments protect you against the risk of blowing through your fortune quickly – something lottery winners are prone to do.
There are also some tax advantages to choosing the annuity, noted the New York Times. Because the government will be investing your winnings for you, you won’t have to pay taxes on the earnings. If you take the lump-sum and invest it, you’ll pay tax on whatever you earn.
Fans of the lump-sum option point out that you could theoretically get better returns on your winnings by investing them yourself (or rather, hiring a pro to do it for you). But that assumes you’re disciplined enough to stick to an investment plan and hire the best advisors to help you out. That’s not the case for all winners.
Ready to try your lottery luck? The next Mega Millions drawing will take place on Tuesday, October 23 at 11 p.m. ET.
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