Lump sum vs annuity, after taxes
Take-home comparison. The annuity total is larger but is paid out over 29 years.
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Compare the lump-sum cash option against the 30-year annuity for a lottery jackpot, after federal and state taxes, so you can see what you would actually take home.
Lump sum, after tax
$0
Cash value (pre-tax)—
Federal + state tax—
Annuity, per year (after tax)—
Annuity 30-yr total (after tax)—
Lump sum vs. annuity, defined
The advertised jackpot is the annuity amount, 30 graduated payments over 29 years, each about 5% larger than the last. The cash option (lump sum) is a single immediate payment equal to the prize's current cash value, usually around half of the advertised figure. Both are taxable income in the year you receive each payment.
The formula
cash value = jackpot × cash %
lump sum after tax = cash value × (1 − federal% − state%)
annuity after tax = jackpot × (1 − federal% − state%)
annuity per year = annuity after tax ÷ 30
lump sum after tax = cash value × (1 − federal% − state%)
annuity after tax = jackpot × (1 − federal% − state%)
annuity per year = annuity after tax ÷ 30
Worked example
On a $500 million jackpot with a 50% cash value, the lump sum is $250M. At 37% federal plus 5% state (42% total), you keep about $145M as a lump sum, versus roughly $290M spread across 30 annuity payments.
Frequently asked questions
What is the difference between lump sum and annuity?
The jackpot is the annuity (30 payments over 29 years); the lump sum is the smaller cash value paid immediately.
How much tax is taken?
24% is withheld up front, but the top 37% federal bracket applies, plus most states' income tax.
Why is the cash option smaller?
The annuity grows through investment over 30 years; the lump sum is only today's cash value.
Which option is better?
It depends on your goals and discipline, the lump sum gives control now; the annuity spreads income and tax.
Are these figures exact?
No, they estimate using a top-bracket federal rate and the state rate you enter.