Should Mega Millions Winner Take Lump-sum Payment or Annuitize?

Should Mega Millions Winner Take Lump-sum Payment or Annuitize?

NEW YORK (MainStreet)– The gargantuan $636 million jackpot for the Mega Millions drawing is the second-largest lottery windfall in U.S. history, and one winner in California and another in Georgia will split the winnings after matching all six numbers in Tuesday night's drawing.

The two winners have done the hard part in attracting good fortune, but whether to take a lump-sum cash pay-out or to annuitize the winnings is the cushy, but difficult decision the lucky ducks will now have to make.

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Most winners will go for the lump sum in order to be in control of the money from the get-go, and with fears of continued rising tax rates, it might be better to take a softer blow from the IRS now than a harder one in the future.

"The immense size of this particular jackpot can make things a bit more straight-forward," said Doug Walker, president of AfterLotto, a company that provides legal, financial and personal assistance to lottery winners. Whereas a person may be reluctant to take about half of the total pot for the instant gratification of a lump-sum--the lump-sum payout here would be about $160 million for each winner--the difference between $160 million and $320 million is more negligible at those heights. It's a question of whether or not to have golden toilet seats in your yacht.

Generally speaking, the older someone is, the better an idea it is for him to take the lump sum payment, Walker says; with fewer years to get installment payments, it's best to take the cash in one fell-swoop and live the high life.

Given that an annuity option pays out over many years, with each installment growing larger every year, someone near or beyond the age of retirement has less incentive to taken an annuitized payment structure than a younger winner, according to Walker.

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