Lump Sum vs Annuity: Which Lottery Payout Is Better? (2026)
Rates as of October 30, 2026 · 2026 federal tax brackets
Win the Powerball or Mega Millions jackpot and you choose between the full advertised amount, paid as 30 yearly payments, or a smaller cash sum now. The right choice comes down to one number: the return the annuity effectively pays you. With interest rates where they are today, it is about 5.51% a year, guaranteed.
How Each Option Works
- Annuity: one payment straight away, then 29 yearly payments, each 5% bigger than the last. Together they add up to the advertised jackpot.
- Lump sum (cash option): what the lottery would pay today for the U.S. Treasury bonds that fund the annuity. At the current 30-year Treasury yield of 5.31% that is about 42.2% of the jackpot.
Try It: Lump Sum vs Annuity Calculator
Lump sum after tax
$266.2M
From $422.4 million cash
Annuity after tax
$631.5M
Total of 30 payments
First annuity payment
$9.5M
After tax, paid at claim
Annuity's built-in return
5.51%
Yearly, on the after-tax lump sum
The Break-Even Return
Taking the annuity means giving up $266,166,182 today in exchange for 30 after-tax payments totalling $631,499,993. That trade pays the same as investing the lump sum at 5.51% a year. So the lump sum only comes out ahead if you can earn more than 5.51% a year after tax on your investment gains, for 29 years.
A balanced portfolio has historically returned more than that before tax, but not every year, and the annuity's return is guaranteed. Because the break-even return tracks Treasury yields, it is higher when rates are high, which makes the annuity relatively more attractive today than in 2020-2021.
Why the Cash Value Changes With Interest Rates
Year-by-Year Annuity Payments ($1 billion, Texas)
Later years use today's 2026 brackets; future tax rates may differ.
Pros and Cons
Lump sum
- All the money now: invest it, pay off debts, help family.
- Can come out ahead if invested well for decades.
- No risk from future tax rises on later payments.
- Easy to overspend or lose to bad investments.
Annuity
- Pays the full advertised jackpot, with a guaranteed return of about 5.5% a year.
- A built-in limit on spending: a second chance every year.
- Payments rise 5% a year, roughly keeping up with inflation.
- Less flexible, and later payments are taxed at future rates.
Frequently Asked Questions
Is it better to take the lump sum or the annuity?
It depends on what you could earn by investing the cash. At today's rates, the after-tax annuity is worth the same as investing the after-tax lump sum at about 5.5% a year. If you are confident you can beat that after tax, with the risk that involves, the lump sum comes out ahead; if not, the annuity pays more in total and protects you from overspending.
How much smaller is the cash option?
At a 5.31% 30-year Treasury yield the cash option is about 42% of the advertised jackpot. When rates were near 2% in 2020-2021 it was around 70-80%. Higher rates mean a lower cash value.
Do you pay less tax with the annuity?
Hardly. A big jackpot's yearly annuity payment is still taxed mostly at the top 37% federal rate, so spreading it over 30 years saves very little tax. The real difference is the interest built into the annuity.
What happens to the annuity if the winner dies?
The remaining payments go to the winner's estate. Some states let the estate ask for the rest as a lump sum, which can help pay estate tax.
Can you switch from the annuity to the lump sum later?
No. For Powerball and Mega Millions the choice is made when you claim (in some states within 60 days of claiming), and it cannot be changed afterwards.
Other Jackpot Sizes
See also: Lump sum vs annuity guide · All jackpot sizes · Powerball payout calculator · Mega Millions payout calculator
For education only, not tax or financial advice. Cash values are estimates: each lottery publishes the official cash value for every draw. Federal tax assumes a single filer with no other income; state rates were verified in October 2026. Speak to a licensed tax professional before claiming a prize.