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What does it mean when it says cash option on Mega Millions?

The Mega Millions lottery is one of the biggest multi-state lotteries in the United States. When you win the Mega Millions jackpot, you have two choices for how to receive your prize – the annuity option or the cash option. The cash option is the lump sum payment that winners can choose instead of receiving annual payments over 29 years with the annuity option. Understanding what the cash option means on Mega Millions can help you make the best choice if you are ever lucky enough to win the huge jackpot.

Mega Millions Jackpot Payment Options

When the Mega Millions jackpot is won, the winner has a choice between two payment options:

  • Annuity option – Receive the full jackpot amount in annual payments over 29 years.
  • Cash option – Receive a one-time, lump-sum payment equal to the cash in the Mega Millions jackpot prize pool.

The annuity option pays out the full advertised jackpot amount, with the winner receiving 1/29th of the total prize each year for 29 years. The cash option provides a single lump sum payment upfront that is equal to the cash available in the current Mega Millions jackpot prize pool.

Annuity Option

Choosing the annuity option for the Mega Millions jackpot means you will receive your full prize amount, but spread out over almost three decades. Here’s how the annuity option works:

  • 1/29th of the jackpot amount is paid out each year for 29 years.
  • Payments increase by 5% each year to help keep up with inflation.
  • Payments are made on an annually recurring schedule.

The advantage of the annuity option is that you receive the full advertised Mega Millions jackpot amount. The downside is having to wait 29 years to receive all your winnings.

Cash Option

Opting for the cash option for the Mega Millions jackpot means you get a single lump sum payment right away. Here are the key details about the Mega Millions cash option:

  • You receive a one-time, lump-sum payment.
  • The payment amount is equal to the cash available in the current jackpot prize pool.
  • The cash value is typically 50-60% of the advertised jackpot amount.
  • You receive your winnings much sooner compared to the annuity option.

The advantage of the cash option is getting your hands on a substantial sum of cash quickly. The tradeoff is that you only receive a percentage of the full jackpot amount.

How the Cash Option Amount is Calculated

When you choose the cash option for a Mega Millions jackpot win, how is the lump sum amount you receive calculated? The cash option amount depends primarily on two factors:

  1. The size of the current jackpot prize pool.
  2. The annuity rates at the time of the win.

Let’s take a closer look at how each of these elements determines the cash payout for a Mega Millions jackpot.

Jackpot Prize Pool

The cash option amount is directly tied to size of the current jackpot prize pool. The prize pool consists of a percentage of sales from Mega Millions tickets, including:

  • 36.6% of each $2 ticket sold.
  • 48.9% of each $3 ticket sold with the Megaplier option.

The more ticket sales there are, the bigger the prize pool grows. A larger jackpot prize pool means a higher cash option amount.

Annuity Rates

Annuity rates also impact the cash payout calculation. Lower current interest rates lead to higher annuity costs for future payments. This results in a greater difference between the cash and annuity options.

The Mega Millions lotteries use annuity rates based on securities yields to determine the cash value. These rates can fluctuate daily, so the cash option amount is only finalized once the jackpot is won.

Higher annuity rates mean more cash available in the prize pool after accounting for future payments. This enables a larger cash option disbursement.

Cash Option Example

Let’s look at an example to see how the cash option amount gets calculated based on the jackpot prize pool and annuity rates.

In July 2022, the Mega Millions jackpot reached $1.337 billion. Based on strong ticket sales, the prize pool grew to an estimated $785 million.

The annuity rate at the time was 2.16%. To fund the advertised $1.337 billion prize, about $383 million was needed to invest for the annuity payments.

This left $785 million – $383 million = $402 million available as the lump sum cash option. The $402 million cash option was equal to about 30% of the full jackpot amount.

Cash Value Calculation

Advertised Jackpot $1.337 billion
Jackpot Prize Pool $785 million
Cost to Fund Annuity $383 million
Cash Remaining in Pool $402 million

This example shows how the cash option amount is derived based on the size of the jackpot prize pool and the annuity costs at the time of the win. The $402 million lump sum was significantly less than the full $1.337 billion jackpot.

Factors to Consider in Choosing Cash or Annuity

If you are ever fortunate enough to win the Mega Millions top prize, should you take the cash option or the annuity payments? Here are some key factors to consider when making this important choice:

Payment Timing

One of the biggest considerations is when you want to receive your money. The cash option provides immediate access to a substantial lump sum you can invest and spend right away. With the annuity, you have to wait up to 29 years to receive the full amount.

Interest Rates

Current interest rates impact the likely returns if you were to invest a cash option lump sum. Higher rates mean your investments could earn more, making this option potentially more attractive.

Risk Tolerance

Opting for annuity payments provides a highly predictable income stream over almost three decades. Those who want to minimize risk may favor this approach. The cash payout involves more risk that your investments may underperform.

Life Circumstances

Your current life situation can impact your ideal payment option. Young winners may favor cash, while those near retirement may want the certainty of annuity payments. If you have pressing short-term money needs, the lump sum could be more appealing.

Lottery Rules

Some lotteries require annuity winners to identify themselves publicly, while cash option winners can remain anonymous in certain states. This privacy factor may weigh on your decision. Be sure to check your state’s claiming rules.

Cash vs. Annuity: Key Differences

Here is a summary of the key differences between the Mega Millions cash and annuity options:

Cash Option Annuity Option
One-time lump sum payment Annual payments over 29 years
Typically 50-60% of jackpot amount Full advertised jackpot amount
Faster access to substantial winnings Delayed ability to receive full winnings
Higher risk with investment returns Lower risk with predictable payments

Understanding these key differences allows you to decide which option better aligns with your priorities and financial situation if you win the Mega Millions grand prize.

Pros and Cons of Cash vs. Annuity

Weighing the pros and cons of the Mega Millions cash and annuity options can help you make a more informed jackpot payment decision:

Cash Option Pros

  • Immediate access to large lump sum
  • Flexibility in using your winnings
  • Potentially higher long-term returns through investing
  • Can remain anonymous in some states

Cash Option Cons

  • Smaller payment (just 50-60% of jackpot)
  • Higher risk compared to annuity payments
  • Requires financial discipline to manage lump sum
  • May have larger tax bill compared to annuity

Annuity Option Pros

  • Larger overall payout (full jackpot amount)
  • Lower risk with predictable annual payments
  • Built-in protection from overspending winnings
  • Payments increase to help offset inflation

Annuity Option Cons

  • Decades-long wait to receive full winnings
  • Less flexibility in using your prize money
  • Lower potential investment returns overall
  • Typically must identify yourself publicly

Carefully weighing these pros and cons lets you select the jackpot payment approach that best suits your financial situation and priorities.

Tax Differences Between Cash and Annuity Options

The different tax implications of the Mega Millions cash and annuity options are also an important consideration. Here are some key tax differences:

Federal Taxes

Both cash and annuity winnings are taxed at the highest federal income rate, currently 37% for amounts over $539,900. State and local taxes may also apply.

Jumbo Jackpots

For cash payouts over $5 million, an additional 24% mandatory federal withholding applies. This immediately takes a big cut before you receive your lump sum.

Annuity Tax Schedule

Annuity payments face income taxes annually based on that year’s payment amount. Your income level each year impacts your tax rate.

Investment Taxes

Earnings from investing a lump sum cash payout are taxed annually. Long-term capital gains rates may apply to gains on investments held over one year.

State Tax Considerations

Some states, like Florida and Texas, do not tax lottery winnings. Others, like California, levy taxes of over 10% on jackpots. Where you win can impact your after-tax amount.

Evaluating the tax differences is an important part of deciding between the Mega Millions cash and annuity options. Consulting a tax advisor can help you minimize taxes on a jackpot win.

Should You Take the Cash Option or Annuity?

So should you take the cash or the annuity if you hit the Mega Millions jackpot? Here are some recommendations for different situations:

If you need money urgently:

Take the cash. The lump sum provides immediate access to substantial winnings to cover pressing financial needs.

If you want flexibility with your winnings:

Take the cash. The flexibility to invest and spend the lump sum as you see fit may be preferable to scheduled annuity payments.

If you worry about overspending:

Consider the annuity. The forced discipline of annual installments can prevent blowing a huge cash payout too quickly.

If you have strong investment experience:

Lean towards cash. Carefully investing a lump sum yourself may earn higher long-term returns than the annuity.

If you want lower risk:

Favor the annuity. The guaranteed payments over almost three decades provides security against investment losses or overspending.

There is no single right choice between the cash and annuity options. Each winner’s financial situation and priorities can steer them toward the payment approach that makes the most sense.

Strategies for Managing a Mega Millions Cash Payout

If you decide to take the Mega Millions cash option, you’ll want to carefully manage your windfall. Here are some top tips:

1. Remain anonymous if you can

This avoids public pleas for money and other financial risks. Delaware, Kansas, Maryland, North Dakota, Ohio, South Carolina and Texas allow jackpot winners to stay anonymous.

2. Work with reputable financial advisors

Find experienced professionals to help prudently invest and manage your lump sum payout. Check credentials and get references.

3. Live below your means

It may be tempting to splurge with your new-found wealth, but maintaining a disciplined budget preserves more for the future.

4. Invest conservatively

Focus on low-fee, diversified investments like index funds instead of high-risk speculation. Work closely with your financial advisor.

5. Make an estate plan

A will, trusts and beneficiary designations can help responsibly pass your winnings to heirs and causes you care about.

6. Be thoughtful about gifts

Well-meaning gifts can enable financial dependence and resentment. Consider trusts, education payments or thoughtful acts instead of cash.

7. Pursue your passions

One of the best parts of a jackpot is having the freedom to pursue meaningful activities and make a difference.

Following these tips can help ensure your newfound Mega Millions wealth provides long-lasting joy and security for you and your loved ones.

Frequently Asked Questions

Here are answers to some common questions about the Mega Millions cash and annuity options:

Why is the cash option lower than the annuity amount?

The cash value represents just the actual available prize pool funds, while the annuity amount accounts for the time value of money by spreading payments out over almost 30 years.

Can you change your payment option after winning?

In most states, your choice of cash or annuity is final once chosen shortly after the drawing. But in some states, like California, you have 60 days to change your mind.

What happens if you die before receiving all annuity payments?

Any remaining annuity payments would go to your designated beneficiaries. So the full prize amount would still be paid out.

Does the cash option provide higher returns than the annuity?

It depends. With smart investing, the lump sum cash can potentially earn greater returns long-term. But the annuity provides a reliable, fixed rate of return on the full jackpot.

Are jackpots paid in one cash lump sum or multiple payments?

The advertised cash option amount is paid out in a single lump sum payment. Taxes are withheld upfront, reducing the net amount paid.

What happens if Mega Millions goes bankrupt?

Mega Millions lotteries purchase annuity contracts with highly rated insurance companies to fund jackpot payouts. Winnings would still be paid even if the lottery itself went bankrupt.

Carefully considering the cash and annuity choices allows Mega Millions winners to select the jackpot payment approach that best aligns with their personal financial needs and goals.


The cash option provides Mega Millions winners with an appealing alternative to receiving annuity payments over almost three decades. While the lump sum cash amount is substantially lower than the advertised jackpot, it delivers immediate access to life-changing wealth. Understanding how the cash value gets determined and thoughtfully weighing the pros and cons allows jackpot winners to choose the payment method that suits their situation. With prudent financial management, either the lump-sum cash or annual annuity payments can secure the winner’s financial future for life.