Sell Lottery Payments Easily
Structured Lottery Payments or Lump Sum?
Winning the lottery is a dream, but once the initial excitement fades, an important financial decision follows. Should you accept a lump sum payout from the state or receive structured lottery payments through a long-term annuity? Each option affects how much money you receive, how it’s taxed, and how much control you have over your funds. Your age, financial goals, risk tolerance, and tax exposure all play a role in determining which payout structure makes sense. It’s advisable to consult with a financial advisor to go over all your options, especially if you’re considering whether to sell lottery payments in the future.
Lump Sum Payments are Heavily Discounted
Lump sum lottery payouts are heavily discounted compared to the Aggregate Amount of structured lottery payments — a term you may see in your payout schedule that simply means the total of all payments combined. While the aggregate amount reflects the full sum paid out over 25 to 30 years, the lump sum option represents the Present Value of those future payments based on the Time Value of Money principle. Payments are discounted in line with how much the state lottery program would need to invest in US government securities today to be able to fund the full stream of annuity payments.
4 Advantages of Long-Term Structured Lottery Payments
Stability, Predictability, and Tax Control
Choosing structured annuity payments makes sense if you value long-term stability. Instead of receiving all of your winnings at once, payments are spread out over time through a structured annuity. Below are four advantages that often lead lottery winners to choose structured payments rather than a one-time lump sum payout. If you opt for the long-term payout initially, you may still be able to sell lottery payments later to a third party.
1. Lottery Payments Are Protected by Law
One major advantage of structured lottery payments is stability. When you choose to receive your lottery winnings through a structured annuity, those payments are backed by the state for the duration of the payout period. This means that regardless of market conditions or economic uncertainty, your payments continue like clockwork. For many lottery winners, that level of predictability provides peace of mind and long-term financial security.
2. Taxes on Structured Lottery Payments
Structured lottery payments are taxed as ordinary income for each year you receive payments. Unlike a lump sum payout, which pushes the entire jackpot into your taxable income for a single year, structured payments spread that tax obligation out over time. This means you are taxed gradually instead of all at once, which many lottery winners prefer.
3. Know Your Tax Bracket
How Structured Payments Spread Tax Exposure
The highest federal marginal income tax rate is currently just under 40%, and under existing law it is scheduled to revert to a slightly higher rate unless Congress acts. That means a significant portion of your winnings is immediately subject to the top federal rate. This doesn’t include state income tax, which can further reduce what you keep depending on where you live.
4. Structured Annuity Payments Encourage Financial Discipline
It’s not uncommon for lottery winners to make large, impulsive purchases such as a mansion along with a handful of exotic cars. Neither generates income, and cars depreciate in value immediately. Only real estate may be an appreciable asset, and even that isn’t guaranteed. Additionally, annual property taxes, insurance, and maintenance can be quite expensive.
On the other hand, having lottery winnings paid out over time forces a degree of discipline. It helps prevent overindulgence and financially irresponsible purchases.
4 Advantages if You Choose a Lump Sum Payout
Flexibility, Control, and Opportunity
Despite the aforementioned benefits, there are also some drawbacks to choosing to receive your lottery winnings as a structured annuity payout. Next are four reasons that favor choosing a lump sum — or your decision to sell lottery payments — over long-term structured payments.
1. Make Large Purchases or Investments
No Loans. No Banks. No Waiting.
Not all large expenses are necessarily impulsive or financially irresponsible. College tuition, reliable vehicles, and a beautiful home are all very reasonable to want for you or your family. Unless you really hit it big time, an annual or monthly structured annuity won’t provide you the opportunity to make large purchases without a loan. Opting for a lump sum payout — or choosing to sell lottery payments — removes that limitation. Also, taking out a loan seems pointless as you’re creating debt you don’t need. The interest rate on a large personal loan, even for someone with good credit, is most likely higher than the discount rate you’d pay to cash out your payments.
2. Settle Debts with a Lump Sum Payout
Become Debt Free
Settling debt is one of the best investments you can make. Beyond the obvious financial benefits, having no debt offers a peace of mind that is priceless. Imagine owning your own gorgeous home and a few items you’ve always wanted without owing anyone a dime, aside from annual property taxes. How about paying for your childrens’ education without leaving them the burden of student loans? Or having all your family’s vehicles fully paid for? Not having to worry about monthly payment obligations can dramatically reduce your stress and give you financial freedom.
3. Sell Lottery Payments to Make Investments
Create Generational Wealth
Investing is one of the only ways to ensure the value of your money doesn’t decline over time. Although leaving cash in a bank checking or savings account may seem safe, it is actually one of the worst things you can do. Most big banks offer less than 0.5 % annual interest on a typical savings account, well below inflation, which hovers around 3–4 % per year.
If you sell lottery payments to invest in a business or franchise, you’re converting a finite payout into an asset that can generate income that can be passed on to future generations — something structured lottery payments can never do once the payments end.
Learn the Financial Tools Available
Lottery winners should become familiar with the financial tools available including:
A financial advisor can help you create an overall plan that diversifies your investments into a portfolio aligned with your risk tolerance. You can also learn on your own — buy books on investment ideas and strategies. Think of it as “going to school.” You don’t need to become an expert but becoming familiar with these tools can help grow and protect your wealth.
4. Structured Lottery Payments Aren’t Liquid
Limited Access and Opportunity Cost
Money decreases in value over time. Annual inflation and the financial concept known as the Time Value of Money dictate that $50,000 right now is worth more than $50,000 in the future. Not having your lottery winnings instantly available, or “liquid,” can be a drawback, which is why people decide to sell lottery payments. You’ll miss out on opportunities.
Although the Aggregate of your 25 to 30-year annuity payments will be much greater than the lump sum option, you may ask yourself: “What could I have done with that money if I had chosen the lump sum?” or “What if an emergency, or a once-in-a-lifetime business opportunity arises?” or maybe even “I should’ve bought that McDonald’s franchise.”
Most experts agree that, if handled correctly, taking the lump sum option is better than choosing the long-term annuity payout. Wise investments over 25 to 30 years should be able to surpass the aggregate of the annuity. Some people simply prefer having access to their money whenever they feel like it — plain and simple.
States That Allow You to Sell Lottery Payments to a Third Party
22 states allow you to sell lottery payments to a third-party. Court approval is required to ensure the transaction meets legal standards and is fair.
These states include:
Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Montana, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, Wisconsin
If you want to sell lottery payments, it’s advisable to consult with an attorney and/or financial advisor familiar with your state’s requirements.
