A customer at the 7-Eleven on Chino Hills Parkway in Chino Hills receives their lottery tickets on Wednesday, July 27, 2022 where the payout from Fridays Mega Millions is expected to exceed $1 billion.
Will Lester | Medianews Group | Getty Images
The clock is ticking for anyone who landed the $1.34 billion Mega Millions jackpot at the end of July – if they want to claim their prize as a lump sum.
In Illinois, where the winning ticket was sold, Mega Millions winners have one year to claim their windfall if they wish to receive it as a pension spread over three decades. However, according to the Illinois Lottery, they only get 60 days if they prefer to take the prize as a pre-discounted lump sum.
This means if the winner does not claim the jackpot by September 27th – 60 days after the July 29th drawing – the prize will default to the annuity option.
“You have a choice that will be made for you if you don’t make it,” said Susan Bradley, a board-certified financial planner and founder of the Sudden Money Institute in Palm Beach Gardens, Florida.
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The $1.34 billion jackpot, the second largest prize in the game’s history, was won on a ticket purchased in Des Plaines, Illinois.
As of Thursday, the jackpot remained unclaimed, according to Illinois Lottery spokeswoman Meghan Powers.
“With a prize of this magnitude, it is not uncommon for a winner to take a little longer to claim the prize as they may wish to seek professional legal and financial advice prior to claiming,” said Powers.
Whether the award is a lump sum or an annuity, there are pros and cons to each option that are best sorted out with the help of a team of professionals, Bradley said.
This team could include experts in finance areas such as tax, wealth advice, investments, trusts and philanthropy.
“Right now, in a perfect world, this winner has already established a brain trust,” Bradley said.
The lump sum option is $780.5 million before taxes
The flat cash option – which most big lottery jackpot winners go for – for this $1.34 billion prize is $780.5 million.
The amount would be reduced by a 24 percent federal tax withholding, or approximately $187.3 million. Another 4.95% would be withheld for state income taxes, totaling $38.6 million. That would leave the winner with $554.6 million, although additional taxes would likely be due.
“Some people say you take the lump sum because you administer it, rather than the state,” she said. “But that comes loaded with all sorts of responsibilities that people can’t see coming.”
In other words, the amount of money would catapult the winner into possession of an amount of money that most people never see in their entire lives. Preserving wealth would require making decisions about investment and tax strategies, philanthropic goals, spending and giving, insurance, and more.
You may need to plan for a “spare fund.”
On the other hand, an annuity may appeal to winners who would rather have an annual income for three decades, Bradley said. For this $1.34 billion jackpot, the annual pre-tax amount is an average payout of $44.6 million, according to usamega.com.
However, in this scenario, the winner should think about what will happen 30 years from now when the payments stop.
“They should have a replacement fund,” Bradley said, referring to winners who choose to retire. This usually means they set aside a portion of their retirement income each year when the payment comes in.
“Assume that 50% of the annual after-tax payment is yours,” she said. “Then split it in half again and put half in your spare till.”
It’s worth noting that the Illinois Lottery allows winners of prizes of $250,000 or more to remain anonymous – meaning you can keep your name out of the public eye.
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