The choice comes on the claim form, and for a jackpot it's one of the biggest financial decisions you'll make. Here's what each option pays and the trade-offs that usually decide it.
What does each payout option pay?
The annuity pays the whole advertised jackpot, spread over time. Powerball describes it as one immediate payment followed by 29 annual payments that increase by 5% each year, and the Mega Millions FAQ describes the same structure. Because each payment grows by 5%, the later checks are much bigger than the first ones.
The cash option pays the money actually in the jackpot prize pool. Powerball defines the cash value as the amount that would need to be in the pool on the day of the drawing to fund the annuity. The advertised jackpot is worked out from that cash plus the interest rates on the securities that would be bought to pay it over 29 years. When rates are higher, the advertised jackpot is higher relative to the cash, so the gap between the two widens.
Some real figures:
- Powerball's $1.80 billion jackpot for the September 6, 2025 drawing had a cash value of $826.4 million, about 46%.
- For the Powerball drawing on October 3, 2026, the advertised jackpot was $440 million with a cash value of $181.3 million, about 41%.
- Across the 2026 Powerball and Mega Millions drawings in our results data, the cash value ranged from about 41% to 46% of the advertised jackpot.
Taxes come out of both options, so neither figure is what you'd actually take home. Our federal and state lottery tax breakdown and cash value explainer go further.
Why take the lump sum?
The main reasons are control and time. You have all the money now and can invest it, pay off debts, give some away or set up trusts as you see fit. If you invest it and earn more than the annuity's built-in growth over the years, you can end up ahead of the annuity total, though that depends on how you invest and on not spending it down.
The tax picture matters too. A lump sum is taxed in a single year, so nearly all of a jackpot falls in the top 37% federal bracket, which for 2026 applies to taxable income over $640,600 for single filers and $768,700 for married couples filing jointly. The lottery withholds only 24% for federal tax when you claim, so expect to owe a large balance when you file, plus any state income tax.
Why take the annuity?
You get the full advertised amount, which is more than double the cash value at current rates, before taxes. The money arrives as a yearly income that rises by 5% each year, and you can't spend payments you haven't received yet, which protects you from overspending early on.
Taxes are spread out as well. On a large jackpot most of each annual payment will still be taxed at the top rate, but you avoid a single huge tax bill, and future changes in tax law or a move to a state without income tax could work in your favor (or against you).
The annuity doesn't vanish if you die. Powerball says the balance is paid to the winner's estate, and Mega Millions says payments continue to the winner's designated beneficiary or estate. The value of the remaining payments can count toward estate tax, so this is something to plan with an estate lawyer. See what happens to a lottery annuity when you die.
The downside is flexibility. Most of the money is out of reach for decades, so you can't use it for a large purchase or an emergency, and its growth is fixed at the 5% annual step-up.
Which is worth more?
On paper the annuity pays more in total, because it includes 29 years of growth. The real question is whether you could do better with the cash yourself. If you would invest the lump sum sensibly and leave it alone, it can match or beat the annuity while staying available to you. If you think you'd spend a large part of it, the annuity's fixed schedule may leave you better off. Nobody can tell you which kind of person you are, but it's worth being honest about it before you sign.
When and how you make the choice depends on the state. Mega Millions notes that prize claim rules vary from state to state, so ask your lottery how its election works before you claim. Our step-by-step claim guide covers the order to do things in, and do lottery winners get paid all at once covers payment timing.
For a decision of this size, talk to a fee-only financial adviser and a tax professional before you file the claim.
Lump sum and annuity questions
Is the lottery lump sum half the jackpot?
A bit less, at current interest rates. In 2026 Powerball and Mega Millions drawings the cash value has run about 41% to 46% of the advertised jackpot. Powerball's $1.80 billion jackpot in September 2025 had a cash value of $826.4 million.
How many years is a Powerball or Mega Millions annuity?
Both pay one immediate payment followed by 29 annual payments, 30 in all, with each payment 5% larger than the one before.
How much federal tax is withheld from a lottery jackpot?
The lottery withholds 24% for federal tax. A jackpot puts you in the 37% top bracket, so you'll usually owe more when you file, plus any state income tax.
What happens to annuity payments if the winner dies?
They continue. Powerball pays the balance to the winner's estate, and Mega Millions pays the remaining payments to the winner's designated beneficiary or estate. Estate tax may apply to their value.
Can you switch from the annuity to the lump sum later?
Generally you shouldn't count on it; treat the choice as final. The rules are set by each state lottery, so check them before you claim.
This article explains how the payout options work and isn't financial or tax advice. Sources: Powerball and Mega Millions FAQs; Powerball jackpot announcement, September 5, 2025; IRS 2026 inflation adjustments; Lottery Atlas results data for 2026 cash values.
