Mega Millions Annuity or Cash: Which Should You Take?

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Updated on Friday, September 13, 2019

There’s exactly a one in 302,575,350 chance that you’re going to win the Mega Millions jackpot. Those aren’t great odds: In fact, you’re about 80 times more likely to be attacked by a shark, and about 19 times more likely to give birth to identical quadruplets.

But hey, someone has to win right? And when that lucky person does hit the jackpot, they’ve got a big question on their hands: Do you take the Mega Millions annuity or stick with the lump sum payout?

And whether you’re the person with that lucky one in 302,575,350 ticket, or just curious about how the system works, it’s worth knowing the difference between the two payout options — because they change a lot about how you get your winnings.

With that in mind, here’s everything you need to know about the Mega Millions annuity, the lump sum option, and which one you should choose if you hit the jackpot.

Mega Millions annuity: How it works

Unlike the lump sum option — in which you get all of your money at once — the Mega Millions annuity spreads your winnings into annual, gradually increasing payments. Similar to the Powerball annuity option, the Mega Millions system is spread out over 29 yearly installments, in addition to one immediate payout you get when you cash in your ticket.

That’s 30 payments in total. It may seem like a long time to wait for your money, but, according to the lottery, this system is designed to “protect winners’ lifestyle and purchasing power in periods of inflation.” Also, since payments grow by 5% every year, your will increase a lot over time.

So what does the annuity option actually look like? Let’s look at an example. Say you won a $100 million jackpot, and you live in Virginia — a state with a pretty average tax rate. Here’s how some of your payments would look:

  • Your initial payment, which you get as soon as you cash in your ticket, would be $1,083,703 after taxes.
  • Your first yearly payment (your second payment in total, but the first of your annual installments) would be $1,137,888 after taxes.
  • By year 14, you’d eclipse $2 million, earning an annual payment of $2,043,484 after taxes.
  • By year 22, you’d exceed $3 million, getting $3,019,157 after taxes.
  • Your final installment would total $4,460,670, more than four times your original payment.

After taxes, this scenario would leave you with a total of $72,000,000. Your taxes will obviously vary based on your state though, so to explore more options — and see a more thorough, year-by-year breakdown — check out this online calculator.

Mega Millions lump sum: How it works

The lump sum, also known as the cash option, is a little more straightforward. It involves a single, one-time payment that you receive right after you cash in your winning ticket.

There are a few details worth nothing, though. First, the jackpot amount you see advertised on billboards and lottery machines is not the lump sum payout. Those numbers show you what you’d get over 29 years with the annuity option — in reality, the cash option is always less.

Robert Pagliarini, president of Pacifica Wealth Advisors and a financial planner who specializes in sudden wealth events, says that the lump sum normally pays around 60% of the advertised jackpot.

And that’s not including the government’s share. The good news with the cash option is that you only have to pay taxes on your winnings once, but Pagliarini warns that it’s still something winners need to take into account.

For example, in that same situation from before — the one where you’re a Virginia resident who wins a $100 million jackpot — your lump sum payment would be $43,920,000 after taxes.

Mega Millions annuity vs. cash: Which should I choose?

Yes, taking the annuity will eventually amount to more money, but both options have some major advantages. Here are some of the biggest benefits of each.

Mega Millions annuity advantages

Pagliarini says he “preaches” this option to clients for a number of reasons — and not just because it’s a bigger jackpot. Another draw is that the annuity option gives winners room for mistakes, which could be crucial for people who are suddenly coming into a large sum of money.

“What we find is that some people make some fairly bad decisions when they get such a large amount of money,” Pagliarini said. “[The annuity] allows someone to screw up with their money and get a do-over — not just one do-over, but 29 do-overs.”

Pagliarini also said he believes the annuity option makes it easier for winners to deal with taxes, as they’ll lose a small amount every year versus one big tax hit with the lump sum. He said cash option winners may “anchor” — or mentally attach themselves — to the total jackpot amount, setting themselves up for disappointment when they lose millions in taxes at once.

Mega Millions lump sum advantages

The most obvious advantage here is simple: You get all of your money at once. That sort of quick, immediate payout is great in a lot of situations — if you’re older, have some immediate spending needs or just want your money now — but Pagliarini points out another big selling point.

To him, it’s all about investment. Taking the cash option gives you a lot of money to work with, and, if you use it wisely, you could find yourself in an even better financial situation than if you took the annuity. Pagliarini suggests that lump sum winners put a big percentage of their jackpot into stocks or real estate as soon as they receive it.

“In fact, if you were to take that money and invest it in a diversified portfolio,” Pagliarini advised, “you most likely would actually end up with more money than if you had taken the annuity.”

But despite these advantages, Pagliarini almost always tells people to take the annuity. He warns that if you do choose the cash option, you should immediately surround yourself with a large team — of tax lawyers, accounts and financial advisors — to help you manage that massive payday.

“The pressures [of winning a jackpot] are so intense that it’s really easy to make bad decisions,” Pagliarini said. “So it’s really important to have someone helping to make decisions on your behalf.”

Mega Millions FAQ

What happens to an annuity if the winner dies?

If someone who’s chosen the annuity dies, the lottery will continue with annual payments exactly as scheduled, making them out to the winner’s selected beneficiary or beneficiaries.

How do I claim my Mega Millions prize?

Jackpot winners must claim their jackpot in person at their state’s lotto headquarters. The time frame for this process varies by state — you can have between 90 days to one year to claim your jackpot, depending on where you live — and you must redeem your ticket in the state where it was purchased.

Can I remain anonymous if I win Mega Millions?

This one also depends on your location. Only 12 states currently offer anonymity to jackpot winners, and some of those offers come with restrictions. For example West Virginia requires winners to donate 5% to the State Lottery Fund in order to remain anonymous. You can find a list of each state’s Mega Millions anonymity rules here.

Are there Mega Millions scams I need to know about?

Yes. The lottery warns that you should beware of unsolicited messages via phone, email and social media, as well as anyone who asks you to provide bank info or send them money before redeeming your jackpot. Mega Millions offers plenty of tips for avoiding scammers, including making sure any call you receive is actually coming from the lottery and being suspicious of anyone saying you must keep your win confidential. They also warn that you should avoid anyone saying they work for Mega Millions — remember, Mega Millions is a game, not the name of an organization.