Not financial advice: A lump sum of $4,250,000 is a better financial windfall than 30 annual payments of $225,000.
On paper, the annual payments total $6,750,000 which is greater than the lump sum. However, if the $4,250,000 were taken all at once and invested, over 30 years that original principal plus interest would surpass the $6,750,000 offer.
This is assuming that the $4,250,000 is the after-tax payoff amount. Otherwise, such winnings would be taxed at a rate of 39.8% meaning that to be offered a $4,250,000 lump sum, the jackpot would have to be over $7,000,000. If that $4,250,000 amount is before taxes, the actual payoff would be just over $2,500,000.
State lottery winnings taxes vary. For example, New Jersey winners are taxed at 10.8% while in Indiana it’s 3.4%.
In late September 2012, a Powerball winner remained unnamed in a $202,000,000 jackpot. Abiding by the above mentioned tax laws, the lump sum payout will be around $121,000,000.