When a lottery jackpot hits seven figures, it can feel like an insurmountable mountain of wealth. But a few quick decisions can quickly turn that pile into something a lot less substantial. For starters, lottery winners have to choose how they want their prize money paid out. Most lotteries offer winners the option of a lump sum or an annuity. The lump sum is a single payment, while the annuity spreads out payments over 30 years. If you die before all the annual payments are made, the remaining sum is bequeathed to heirs in your will.
But when it comes to choosing between the two options, a big consideration is taxes. The federal government counts lottery winnings as income, meaning that a large jackpot would push you into a higher tax bracket. And most states collect their own taxes, too. If you chose the cash option, about 37% of your prize would go to the IRS, according to the Mega Millions website.
And while it may seem like there are more lottery jackpots hitting the $1bn mark these days, that’s because the odds were changed a few years ago to make them larger. In fact, the jackpot for Friday night’s Mega Millions is only the fifth ever to hit that figure.