Cash vs Annuity

1. Powerball.net
2. Information
3. Cash vs Annuity

When you win the Powerball jackpot, you have a number of important decisions to make, including whether you want to receive your winnings in one cash lump sum or as an annuity to be paid out over 29 years. You have 60 days from the date of the winning draw to make this decision, and if you don't notify your state lottery of your choice within this period, you will be paid the annuity by default.

The choice of payment type is completely up to you, the winner. The most noticeable difference between the values of the Powerball lump sum vs the annuity is that the cash option is always lower. The advertised jackpot is always stated as the full annuity amount.

The annuity payments are graduated, meaning they increase in value every year, taking into account the profits that would be made if the lottery invests the money for you. The lump sum does not include these increases - the cash payout purely consists of the money raised from ticket sales towards that jackpot.

This is worth remembering for when you come to make the decision and see that the cash lump sum is worth tens – or even hundreds – of millions of dollars less than the annuity.

Cash Lump Sum

The lump sum option has proved the more popular one with jackpot winners in recent years, perhaps because they would prefer the financial security of having millions of dollars in their bank account. Here are some points to consider about the cash payout:

• You receive a big injection of money into your bank account and you don't have to wait to splash out on the big purchases. Having the cash in one go, even though it's less than the advertised jackpot, means you don't have to seek out credit for big purchases.
• It could be possible to earn a return that is larger than the annuity amount by investing the cash sum. There are varying degrees of risk involved in investing money, so this should only be undertaken after seeking expert financial advice. In addition, you will be investing an after-tax sum, while the graduated increases in the annuity payments are applied pre-tax.
• If you are older, setting up a plan for payments over 29 years may not be practical, and you may be more interested in making the most of the money while you can with a Powerball cash payout.

Annuity

While the cash lump sum is the preferred option for many winners, annuities provide the most value for money as you get the full jackpot amount. Many winners may be concerned that something will happen – either to themselves or the lottery paying them out – before they receive all their money, but processes are in place to ensure that all winners are paid out in full. You should take the following into account when considering an annuity:

• Annuity payments guarantee an income for the foreseeable future, so you can make the most of your good fortune over a long period of time.
• The graduated payments mean that you receive a significantly larger amount of money over the life of the annuity as opposed to taking the cash option.
• If you die, outstanding annuity payments can be passed on to your estate. Payments will still be subject to federal and state income tax and the beneficiaries of the money may be liable to pay estate or inheritance tax too.
• Being paid in smaller instalments rather than in one lump sum can reduce taxes applicable to your prize money, as it may not place you in the top tax bracket like the cash option inevitably will.

Your state lottery will offer the same level of support after your win regardless of which route you go down. However, it is always a good idea to seek expert financial advice before deciding whether to take the cash lump sum or the annuity, as your personal circumstances may make one option more beneficial than the other.