How to Minimize the Taxes You’ll Pay on a Lottery Jackpot

lottery jackpot

A lottery jackpot is a prize that is won by matching all of the numbers drawn in a lottery game. The prize can be paid in either a lump sum or in an annuity, which pays out over a period of time.

Super-sized jackpots drive ticket sales: They’re a huge windfall for the lotteries, as well as a source of free publicity on news sites and newscasts. That’s why lotteries try to keep their top prizes growing.

In 2017, Powerball increased ticket prices and added more number combinations to increase jackpot sizes. More recently, interest rates have also helped lottery operators offer bigger jackpots.

While the odds of winning a big jackpot are high, they’re not insurmountable. For instance, your odds of winning the current Mega Millions jackpot are 1 in 302.6 million, according to MUSL’s website.

However, even if you do win a big jackpot, there are ways to minimize the taxes you’ll pay on it. For example, most U.S. lotteries take 24 percent of their winners’ winnings to cover federal taxes, and some states and local governments also withhold income tax payments.

You’ll need to consider your personal financial goals and how a large windfall affects your investment plans. You should also evaluate your risk tolerance and how it changes after a big win.

The best way to protect yourself from spending all of your new wealth on big-ticket purchases is to choose the annuity payout option. That way, you’ll receive 30 payments over the course of 29 years, which can reduce your taxes and give you a solid income stream that will keep on increasing.