What Are The Types Of Lottery Payouts Offered and Which Should You Choose?

In the lieu of “having some good problems” in the world of lottery, it’s hard to decide how you want your winnings to be paid out!

After winning a huge sum of money, anybody may feel like an Alice In Wonderland!

Behind that glitz and glamour of a prize, there’s a side that none of the winners get to see until they get the prize encashed in their account.

Whenever any of you matches the winning numbers for Jackpots games like Mega Millions and Powerball your head may start spinning and your vision starts getting blurred because, who can think straight after becoming a millionaire by just investing, like what, $2??

Therefore this is the exact time, you’ve got to bring everything back in place and work out things smartly so that you do not make a mistake while getting your prize money paid!

As per the standard rules of most of the state and multi-state lotteries, if somebody cracks the jackpot by matching all the winning numbers, the prize amount is distributed in one of two different ways. First, as an annuity of 30 payments over 29 years, or as an immediate cash payment of lump sum.

Majority of the winners opt for the cash option since they think, they are receiving a larger amount doing so. But according to the lottery data analysis experts, this is largely not the case. In terms of annuity payout, the sum payable almost remains the same! Because in both cases the winning amount is subject to applicable federal and state taxes.

For a better understanding of what are the main differences between the two and which is considered the best option for players, let’s dig a little deeper!

How Are The Different Lottery Payout Options Taxed?

Annuity Payout Option

Income taxes are not carried over until payouts are received. As soon as you get the first payment in your account, you’ll get under some tax obligation. After that, the taxes will not come into play, unless you receive the annual payment of the prize every subsequent year.

Cash Payout Option

As soon as you receive the cash payment of your prize, the federal income taxes are due. There is a possibility that you might move into a higher tax bracket, which could triple your tax rate. Depending on the state you live in, you might have to pay additional local and state income taxes on your payout.

Advantages Of Opting For The Annuity Option

  • In an annuity option, it is known for a fact that you will receive a steady income for a long term. Which in turn makes it a smart option for people who don’t hold a good record in handling money problems. Going for the annuity option reduces your risk of going broke in the future.
  • With an annuity option, you can spread your taxes over a long period of time, rather than getting a big blow by accepting the lump-sum payment.
  • Because of the large influence, tax applicability holds, winners who opt for annuity payout usually come close to the advertised jackpot amount than those who chose the cash payout option.

Advantages Of Opting For The Lump-Sum Option

  • Choosing the cash payout option gives you the advantage of gaining a massive pile of cash in just a single go, and lets you do what you want. The certainty of having a large amount of liquid cash in your hand, is probably why most winners choose the lump-sum option.
  • Though with the annuity option, you tend to receive a little more, you can still earn more money, if you invest the money received out of cash payout wisely.
  • Much unlikely, but you can end up doing much better in tax situations with the lump-sum option as tax brackets keep changing and may rise in the future.

The Bottom Line

Similar to a coin with two different sides, winning a lottery also has two sides, each significant to its part. Therefore making the decision of which payout option should you choose, is tough to make. So, from a monetary point of view, it is a wise decision to opt for the annuity option, since you’ll receive a good amount of money every year! Having said that, it’s not a one-size-fits-all decision. If you need immediate relief from your financial struggles, it might be smart to take the cash option. If you have any more queries regarding the world of lotteries, don’t forget to write to The Lottery Lab and pave a much easier way to mark a grand win!

All the best!

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Charles Weko

The Lottery Lab provides more than just today’s winning numbers.