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One of the many decisions you’d have to make if you won the Powerball jackpot is whether you’d rather take your winnings in a Powerball annuity or as a lump sum. Most people want their money now, but don’t cash that check quite yet. You’ll want to think through the two options to make the right choice, as they both come with advantages and disadvantages.
This article covers everything you need to know about selecting either the Powerball lottery annuity versus lump sum if you’re lucky enough to be a winner.
If you win the Powerball jackpot, you can choose to receive the jackpot in an annuity that is paid in 30 graduated payments over 29 years with an annual interest rate of 5%. An annuity calculator can help you determine your payout amounts over time.
As an example, let’s say that the estimated Powerball jackpot is $112 million in the state of California. Using this scenario, your immediate annuity gross payout would be $1,685,761 — before federal and state taxes. Because of the 5% increase each year, the second year you would receive $1,770,049, and the third year you would get $1,858,551. Your annual payments would continue to grow by 5% each year until your final payment of $6,938,820.
Of course, you’d owe taxes on your winnings. This income would put you in the highest federal tax bracket, which is currently 37%. Note that the IRS will automatically take 24% of your winnings, and then you’ll owe the rest when you pay your taxes. You also could owe state taxes, which will vary depending on where you live. New York has the highest rate at 8.82%, while some states, like Tennessee and Texas, don’t tax lottery winnings at all.
Just like it sounds, the lump-sum option pays out the cash value of the jackpot all at once. In the case of the $112 million Powerball pot, the cash value is $75.4 million.
Unlike the annuity that is taxed as you receive your annual payments, the winner who takes the lump sum pays all applicable taxes upfront. A winning ticket would put you in the highest tax bracket, which is currently 37%, netting you $47,502,000 before state taxes, which vary depending on where you live.
No matter how you decide to take the money, if there is more than one winning ticket, the pot is divided equally. If you’re the sole winner, you get the entire amount.
One prize does not fit all when it comes to the lottery, and the answer to the question of Powerball annuity versus cash is situation-specific. We break down the advantages of the Powerball annuity versus lump sum to help you figure out what’s right for you.