I've known a few lottery winners mostly personally like friend's parents/grandparents. Some friends have managed lottery winnings for clients.
In some states, the government collects more tax revenue from the lottery than from businesses… crazy to me that the government runs a lot of lotteries.
Get a Trust & Estate Lawyer (ideally also a Tax Attorney), on retainer and from a large, national firm. Hire a great fee-only fiduciary (not a commission-based broker) and solid CPA. In most states… you can set up an LLC or blind trust to claim the winnings.
It's generally better to take the lump sum if you're financially disciplined, since you can invest the winnings immediately and potentially earn higher returns, though this isn't universal and depends heavily on your own skills, risk tolerance, and discipline. The detail about 7–10% annual returns is not a factual guarantee but an assumption based on long-term U.S. stock market averages. Historically, the S&P 500 has returned about 10% per year before inflation and around 7% per year after inflation averaged over many decades. These averages smooth out wars, recessions, financial crises, and booms, so they are not promises of what any individual investor will achieve going forward. They serve only as a reference point: in reality, market returns can swing far higher or lower in any given decade, and not every winner has the patience or discipline to ride out those ups and downs. The difference between someone who invests carefully for decades and someone who panics or spends recklessly in the first few years can mean the difference between turning a windfall into a multibillion-dollar portfolio or watching it dwindle away.
For major lotteries like Powerball or Mega Millions, the lump-sum cash option is not a fixed percentage of the jackpot but rather the present value of the annuity stream, which depends on Treasury interest rates at the time of the drawing. When interest rates are low, the cash percentage tends to be lower; when rates are higher, the cash percentage is closer to half. In practice, this usually works out to about 45–55% of the advertised jackpot. For instance, the current estimated $1.8 billion Powerball jackpot (as of September 6, 2025) offers about 46% as cash, or $826.4 million. This discrepancy exists because the lottery does not actually have a vault with $1.8 billion sitting inside. Instead, if you choose the annuity, the lottery uses your cash value to buy a portfolio of government securities that will mature on schedule to fund each of the 30 payments. If you choose the lump sum, you simply take the upfront present value and leave behind the future interest that those securities would have earned.
The annuity pays the full advertised jackpot through 30 payments made over 29 years, starting with one immediate payment and then 29 annual payments that rise by 5% each year. That 5% increase is built in to help offset inflation and provide a growing income stream that doesn't stagnate in nominal terms as the years go on. It's one of the reasons many financial advisers point out that the annuity can be an underrated option for those who fear their own lack of discipline: it guarantees a stream of income that increases every year without the winner needing to manage investments, choose risk levels, or time the market. A person who struggles with financial literacy may actually be far better off with the annuity than with the temptation of a single lump sum.
Winnings are taxed as ordinary income under federal law. The IRS withholds 24% upfront on prizes over $5,000, but this withholding is not the final liability; winners usually owe more when filing. Jackpots of this size almost always place you into the top 37% federal bracket, which in 2025 applies to income over $626,350 for single filers and $751,600 for married couples filing jointly, though tax brackets change annually. That means most winners will owe an additional tax payment when they file the following year. Annuity payments are also taxed as ordinary income in the year received. While spreading payments out may soften the immediate tax hit, the amounts are typically large enough that annuity winners also face the top bracket nearly every year. Thus, the difference is less about avoiding the top federal rate and more about timing, cash flow, and investment control.
State taxes vary significantly. Some states, such as Washington, Florida, Texas, South Dakota, and Wyoming, impose no personal income tax on lottery winnings, allowing winners to avoid a large extra layer of taxation. Washington does levy a Business & Occupation tax, but this applies to businesses, not individual lottery winners. By contrast, states such as Minnesota and New York take a sizable cut. Minnesota's top income tax rate is 9.85%, and the state withholds 7.25% on prizes over $5,000 regardless of whether the winner ultimately owes that full amount. New York State's top bracket is 10.9%, and New York City adds up to 3.876% more if the winner is a city resident. In practice, this means a New York City jackpot winner could owe close to half of their winnings in combined federal and state/local taxes. Residency at the time of payment determines which state's rules apply. With a lump sum, the entire amount is recognized in the year you claim it, so moving afterward does not help reduce state taxes. With an annuity, future installments are taxed in the year you receive them, so moving to a no-tax state before the payments begin can significantly reduce the long-term state tax burden. This strategy has been used before by winners relocating from high-tax states to states like Florida or Texas, but it requires planning and compliance with residency laws.
The lump sum offers liquidity, flexibility, and immediate control. A disciplined investor can put the money to work right away, potentially earning more than the annuity's built-in growth. But it also carries overspending risk, as countless stories of bankrupt lottery winners demonstrate. The annuity, by contrast, enforces discipline automatically: you cannot spend what you do not yet have, and the scheduled 5% increases help keep pace with rising costs of living. Both paths have advantages and disadvantages, and the "better" choice depends on the personality, habits, and financial literacy of the winner as much as on the raw math.
Many winners use trusts for estate planning and asset protection after claiming. Trust laws vary by state, and not every jurisdiction allows a trust to claim winnings directly. Some states permit anonymous claims through a trust or LLC, while others require the winner's name to be public. Assigning annuity payments to a trust or third party often requires approval from a court or the lottery commission. Trusts also face compressed federal tax brackets on undistributed income, meaning they can hit the top 37% rate at much lower levels than individuals. This makes careful structuring with professional advice essential. Winners who take the lump sum often place a portion of the proceeds in irrevocable or dynasty trusts for long-term family wealth planning.
Finally, lottery tickets themselves are generally not subject to sales tax when purchased. Instead, operators and retailers pay separate excise or gambling-related taxes, while winners pay federal and state income taxes on the prize money they receive. This distinction can cause confusion, since many people assume everything involving lotteries carries sales tax, but in practice it is the winnings, not the ticket, that creates the tax liability for the individual.
As a numerical example, consider the current estimated $1.8 billion Powerball jackpot. The lump-sum cash option is $826.4 million. After 37% federal tax, the winner would net about $521 million if they lived in a state with no income tax, such as Washington, but only about $439 million if they lived in Minnesota where the top state rate is 9.85%. By contrast, taking the annuity means the winner would receive the full $1.8 billion spread across 30 payments, taxed year by year. If the winner moved to Washington before those payments began, the only tax owed would be federal, allowing them to keep much more over time than if they remained in a high-tax state.
Now consider the investment side: if the Washington lump-sum winner took the $521 million net and invested it at an average annual return of 7% over 30 years, the value could theoretically grow to more than $3 billion before taxes on investment gains. Even after paying taxes on investment returns, disciplined investing could produce results well above the $1.8 billion annuity. If markets only averaged a more conservative 4–5% return over 30 years, the lump sum would grow to somewhere in the $1.7–2.3 billion range before taxes—close to or slightly above the annuity amount, but not dramatically higher. When adjusted for inflation, the gap narrows further: assuming long-term inflation averages 2–3% annually, the "real" return on a 7% portfolio is closer to 4–5%, which brings it much closer to the annuity's built-in 5% annual increases. In real dollars, the annuity's stream of payments maintains purchasing power fairly well, while the lump sum depends heavily on disciplined investing to stay ahead after inflation and taxes.
Pro-athletes, musicians, actors, peak performers going broke- being a producer not a consumer - a lot of them still have a consumer mentality, they just made it big. Same thing happens to lottery winners, they are not accustomed to producing more than they consume. They have not taken on the mindset of an entrepreneur, they have not built a business from scratch and developed that financial discipline. Another part is the bad deals they find themselves in with bad people. Shady or overly aggressive deals. You have your "money manager" and his accountant and those two guys are handling all of your assets. A couple examples are Nick Cage and Johnny Depp being swindled for $50-$100 million. This kind of stuff happens all the time. They get reports from the accountant and they aren't watching their assets and money. This happens with people that aren't financially literate but they've got these big pay days. A lot of entrepreneurs do that, too. They're really good at one business and they think they should give their money to Wall Street to put into derivatives that they don't even understand or let someone else manage it or they go into bad land deals or bad investments. A lot of people that I've seen make big money, they would have been better off just having that money sitting a savings account. That $100 million from basket ball just let it sitting in a savings account. You're loosing ~2% a year on inflation but a lot of people mess this up and go broke. Peak performers and entrepreneurs that are business savvy but they aren't savvy in the investment realm.
Around 16% of NFL players file for bankruptcy within 12 years of retiring. Financial distress is far more common—some estimates suggest up to 60–80% within two years. About 60% of retired NBA players go broke within 5 year, its suggested that 6.1% file bankruptcy within 15 years of retiring. ~5–6% of MLB players file for bankruptcy within 12 years of retiring.
Another problem is divorce and lawsuits. Michael Jordan payed $160 million in his divorce. In his second marriage's prenuptial, she gets a million per year and if they're together for a decade that goes up to $5 million per year. I had a relative that had the most expensive divorce in the history of a state (keep anonymity). And lawsuits, a lot of doctors have to put their assets offshore in some type of trust to protect against that. And then you've got taxes, it's a big one. Taxes are perhaps the biggest. Compound that interest in a negative way and it's terrible.
Footnote: See my notes on insurance annuities in a separate thread.
I know I've posted this on here before but, eh
Dreaming big here, but I'd like to get my girlfriend her dream gaming setup & kitchen & ask her to marry me. Okay okay .... I want a farm tbh.
