Every jackpot headline is two numbers wearing one coat. The big number is the annuity: thirty payments spread over 29 years. The smaller number, printed underneath, is the cash option: what the lottery actually has in the prize pool today. A winner takes one or the other. A pool takes one or the other for the whole ticket: the choice belongs to the ticket, and how the lottery pays a group depends on the state.
This piece works both choices through, to the cent, for a $500 million Powerball jackpot won by a ten-person pool in Wisconsin. Every figure is an estimate as of October 2, 2026, built from the two games’ published rules and the IRS’s published rates. The lump sum or annuity tool runs the same math for any prize and any state.
How the annuity is built
Powerball’s FAQ says an annuity winner gets one immediate payment followed by 29 annual payments that rise 5 percent each year. Mega Millions describes the same shape: an initial payment, then 29 more, each 5 percent larger than the last.
Because every payment is 5 percent bigger than the one before, the first payment is small and the last one is large. For a $500 million jackpot the schedule looks like this:
- Payment 1 (now): $7,525,717.54
- Payment 2 (next year): $7,902,003.41
- Payment 10: $11,674,857.96
- Payment 30 (29 years from now): $30,976,874.02
- All 30 payments together: $500,000,000.00
The last payment is more than four times the first. That is the whole idea: the payments are meant to keep up with rising prices over three decades.
How the cash option is built
Powerball defines the cash value as the money that has to be in the prize pool on the day of the drawing to fund the annuity. Mega Millions says its cash option equals all the cash in the jackpot prize pool, based on actual sales. In plain words: the lottery takes the cash, buys government bonds, and the bonds pay out the 30 installments.
For this example, say the cash option is $230,000,000.00, which is 46 percent of the headline. The real ratio moves with interest rates; the lottery prints it next to every jackpot.
What the pool actually keeps: lump sum
Alex’s pool takes the cash. The lottery withholds 24 percent federal tax on any prize over $5,000, per the IRS instructions for Form W-2G, and Wisconsin withholds 7.65 percent on prizes of $2,000 or more, per the Wisconsin Lottery FAQ.
- Cash option: $230,000,000.00
- Federal withholding, 24 percent: $55,200,000.00
- Wisconsin withholding, 7.65 percent: $17,595,000.00
- Paid to the claimant: $157,205,000.00
Withholding is a down payment. For 2026 the top federal rate of 37 percent starts at $640,600 of taxable income for a single filer, per the IRS, and nearly all of this prize sits above that line. At 37 percent federal and 7.65 percent state, the estimate after all tax is:
- $230,000,000.00 minus $85,100,000.00 federal minus $17,595,000.00 Wisconsin = $127,305,000.00
Split ten ways, that is $12,730,500.00 per person, the figure Ten friends, one jackpot arrives at by the same road.
What the pool actually keeps: annuity
Now suppose the pool takes the annuity. Each year’s payment is taxed in that year. The IRS instructions say the lottery files a Form W-2G every year and withholds 24 percent from each payment. The first payment, $7,525,717.54, loses $1,806,172.20 to federal withholding and $575,717.39 to Wisconsin, before the rest of the federal tax is settled at filing.
Over 30 years, at the same 37 percent and 7.65 percent:
- $500,000,000.00 minus $185,000,000.00 federal minus $38,250,000.00 Wisconsin = $276,750,000.00
That is $149,445,000.00 more than the lump sum, after tax, if tax rates stay where they are for 29 years. They will not stay exactly where they are. Nobody knows which way they will move. That uncertainty is one of the real costs of the annuity.
So which pays more?
The honest answer is: it depends on one number. In this example the lottery is turning $230 million into $500 million over 29 years, which works out to a yield of about 4.9 percent a year before tax. If a winner can safely earn more than that on the lump sum, after tax and after fees, the lump sum ends up larger. If not, the annuity does.
A financial adviser quoted by Fox 7 Austin on November 2, 2022 put it the same way: compare what you believe you can earn against the rate the annuity assumes (he cited about 4.3 percent for the jackpot of that week), and choose accordingly. The rate changes with every jackpot, which is why our tool shows it rather than assuming it.
Cases where the annuity tends to win
- Smaller jackpots and bigger pools. Tax brackets are the hidden lever. Take a $20 million jackpot and the same ten-person pool. The first annuity payment is $301,028.70, or $30,102.87 per member, and even payment 30 is $123,907.52 per member. Much of that lands in the 12, 22 and 24 percent brackets rather than 37 percent. The cash option at 46 percent would be $9,200,000.00, or $920,000.00 per member in a single year, most of it in the 35 and 37 percent brackets.
- Winners who do not want to manage a fortune. A certified financial planner in the Fox 7 Austin piece favored the annuity because it leaves room to make a mistake in one year without losing everything.
- Protection from pressure. With an annuity, there is no $127 million pile for relatives, salespeople and bad ideas to circle. There is a payment this year and another next year.
Cases where the lump sum tends to win
- Debt at high interest. A card at 24 percent beats any bond. Clearing it first is simply math.
- Older winners and heirs. The estate rules above mean the money is not lost, but a court order and a 29-year wait are real costs for a family.
- Confidence in a conservative, low-fee plan that can clear the annuity’s yield after tax, year after year, without touching the principal in a bad year.
- A pool that wants to be finished. One check, one Form 5754, one settlement, and the record closes. Thirty years of annual splits among ten people is thirty years of bookkeeping and thirty chances for someone to move, divorce, die or fall out with the group.
What advisers usually say, and why
Most people take the lump sum. Several advisers quoted by AARP on March 27, 2024 said the choice is not a single calculation: build a team (an accountant, a planner and a lawyer), set goals for the next year, the next five and the next thirty, and only then pick. One investment adviser in the Fox 7 Austin story raised a point worth remembering: an adviser paid a percentage of the assets they manage earns more if you take the cash. Ask any adviser how they are paid before you ask what they think.
We are not advisers and this is not advice. It is arithmetic with the sources shown.
What a pool decides, and when
A pool’s agreement should say which option the claimant takes before the ticket is ever bought, because ten people who have just won are in no state to agree on it. Our agreement template leaves the claimant to the Pool Admin and tells members that taxes are each person’s own; the lump-sum-or-annuity line is a decision the pool should write down in its chat before the lock. Ask your state lottery when the choice must be made; the Powerball and Mega Millions FAQs do not give one national deadline.
Whatever the pool chooses, the record is the same: the locked shares, the agreement everyone accepted, the ticket photos and the official result. How a pool claims a prize walks through the claim itself, and You won. The first five things to do. covers the 48 hours before it.
Try it with your jackpot
The lump sum or annuity tool takes any advertised jackpot and cash value, your state and your pool size, and shows all 30 payments, the yield the annuity implies, and both after-tax totals in cents. The “If we win” stop on the Journey puts this choice next to the split, the taxes and the claim deadline for your state.
