How the 30-Year Lottery Annuity Schedule Actually Works
Powerball and Mega Millions annuities pay 30 instalments that grow 5% each year. Here is the mechanism and what each payment is worth after tax.
Updated
Thirty payments across twenty-nine years
Both Powerball and Mega Millions structure the annuity identically: one payment immediately on claiming, then 29 more on each anniversary. That is 30 payments spanning 29 years.
The payments are not equal. Each one is 5% larger than the one before, a structure known as a graduated annuity. The intent is to keep purchasing power roughly level against inflation over three decades.
Because the payments grow, the first is considerably smaller than the headline figure divided by 30. On a $500 million jackpot the first payment is around $7.5 million, not $16.7 million, while the final payment is about $31 million.
Where the money comes from
The lottery does not hold the full advertised amount. It takes the cash value and buys a portfolio of government securities structured to produce the 30 scheduled payments.
This is why the advertised jackpot moves with interest rates. When rates rise, the same pot of cash buys a larger stream of future payments, so the advertised annuity figure increases even if ticket sales have not changed. Jackpot announcements are partly a bond market story.
The tax treatment of each payment
Each payment is ordinary income in the year received, with 24% withheld federally and state tax applied under that year's rules.
For a large jackpot every payment still lands in the top bracket, so the bracket-spreading advantage is smaller than people assume. It is real but modest. The lower brackets get used thirty times rather than once.
The genuine uncertainty is legislative. You are accepting 29 years of future tax policy risk in exchange for the guaranteed payment stream.