Mega Millions: How the Billion Dollar Prize Works in Reality | Smart Change: Personal Finance

Taryn Vanoff, Nerd Wallet

The Mega Millions jackpot swelled to an estimated $1.02 billion before the next draw on Friday, July 29. A billion dollars is no easy feat, and it has only happened twice before in the history of Mega Millions.

If you want a chance to win the jackpot, here’s what you need to know.

How to buy a Mega Millions lottery ticket

Mega Millions can be played in 45 US states, as well as Washington, DC and the US Virgin Islands. Players can buy as many tickets for $2 as they want. Each ticket requires you to choose five numbers between 1 and 70, and a sixth number between 1 and 25 (or you can let the lottery people generate the numbers for you). The jackpot goes to the person (or people) who correctly chooses all six numbers.

The odds of doing so are roughly 1 in 303 million.

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Although it is a national game, each participating country has its own rules on how to claim a reward. In fact, the length of time you have to file your claim can range from 90 days to a year from when the numbers are drawn. Be sure to check the rules in the country where you purchased your ticket.

How much can you earn?

Every Mega Millions jackpot winner has the option to take cash now all at once, all at once or receive a significant portion of the winnings annually for 30 years.

For the $1.02 billion jackpot, the cash option is $602.5 million.

If you take the annuity option instead, you could get close to $15.3 million for the down payment. Then each one after that increases by 5%. If you die before all the annual payments are made, the remainder will be sent to your heirs.

Each option has its pros and cons, said Lisa Kirchenbauer — founder and president of Omega Wealth Management in Arlington, Va., and a certified financial planner.

Kirschenbauer also said that anyone finds himself Suddenly rich It should form a team of professionals, including a lawyer, accountant, and financial planner.

“Your team will help you decide which option is best for you,” she said. “It’s not a one-size-fits-all decision.”

How are lottery winnings taxed

If you win a billion dollars in the lottery, you definitely owe federal income tax on it. To start, according to the IRS website, 24% of your earnings are withheld. How much it depends on whether you go for the cash or annuity option, since you only pay taxes on what you receive in a given year.

If you take the cash all at once — remember, that’s about $602.5 million — you’ll see $144.6 million taken off the top, leaving you with $457.9 million.

In April, you will likely owe additional federal income taxes, as well as state income taxes, depending on where you live.

What do you do if you win

While it’s something we may have all dreamed of, no one is ready to win the jackpot. If you do, protect your ticket. Anyone who owns a winning lottery ticket can apply for the prize.

Next, consider anonymity. Each state has its own laws about whether lottery winners should be publicly disclosed. Keeping your name out of the news and telling as few people as possible protects you from scammers and long-lost “friends” who want to call back.

The key, Kirschenbauer said, is slowing down. “Don’t start spending money before you have time to plan and think.”

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