Mega Millions: How a Billion Dollar Jackpot Actually Works | Personal finance

Taryn Phaneuf, NerdWallet

The Mega Millions jackpot has risen to approximately $ 1.02 billion ahead of the next draw on Friday 29 July. A billion dollars is not an easy number to understand, and it has only happened twice before in the history of Mega Millions.

If you want to have a chance to hit 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, plus Washington, DC and the US Virgin Islands. Players can purchase as many $ 2 tickets 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 select all six numbers.

Your chances of doing so are around 1 in 303 million.

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Although it is a national game, each participating state has its own rules on how to claim a reward. In fact, the time required to submit the request can vary from 90 days to one year from the date of drawing the numbers. Make sure you review the rules in the state where you bought your ticket.

How Much Could You Win?

Every Mega Millions jackpot winner has the option to take cash now in a one-time payment or receive a portion of their winnings annually for 30 years.

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

If you chose the annuity option instead, you could get about $ 15.3 million for your first payment. So each one after that increases by 5%. If you die before all annual payments have been made, the rest will be sent to your heirs.

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

Kirchenbauer also said that anyone who suddenly finds himself rich should put together a team of professionals, including a lawyer, accountant and financial planner.

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

How lottery winnings are taxed

If you win a billion dollars in the lottery, you definitely owe federal income tax on it. For starters, according to the IRS website, 24% of your winnings are withheld. The amount depends on whether you have opted for the cash or annuity option, since you only pay tax on what you receive in a given year.

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

In April, you should probably pay additional federal income taxes, as well as state income taxes, depending on where you live.

What to do if you win

While it’s something we’ve probably all dreamed of, no one is ready to hit the jackpot. If you do, protect your ticket. Anyone in possession of a winning lottery ticket can apply for the prize.

So, consider your anonymity. Each state has its own laws regarding the possible public identification of lottery winners. 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 get back to you.

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

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