Like it or lump it — choosing your lottery payout

By Dwayne Steward

McClatchy News Service

MELVILLE, N.Y. — Last week Ohioan David Coterel, 65, came forward to collect the $300 million he’d won in a Powerball lottery jackpot in Indiana. So why are Coterel and his co-winners — son, David Jr., and daughter, Lynn Hiles — walking away with only $145.9 million, before taxes? Because they had to choose either cash or yearly annuity for their winnings at the time of the ticket purchase — and they chose the full cash option.

That’s something to think about next time you lay down money for a lottery ticket.

"Many people don’t understand that if they opt for taking all the cash at once (as opposed to a yearly annuity), they are likely to lose half," said Chuck Strutt, executive director of the Multi-State Lottery Association, a non-profit organization overseeing lottery departments in 29 states, Washington, D.C., and the U.S. Virgin Islands.


Ticket buyers are given the option of cash or annuity when they buy their tickets. Most see the large advertised jackpot and choose the cash option, thinking they’ll receive the lump sum, Strutt said.

But the advertised award doesn’t include the withholding tax of as much as 35 percent imposed by the federal government on all lottery winnings; state taxes are also assessed. A winner’s actual tax will be calculated using the individual’s specific tax information, in the same way taxes are calculated from a regular payroll. It’s likely that even more taxes will be taken on lottery winnings at tax time, Strutt said.

New York is not a part of the multi-state association that runs Powerball. It does participate in Mega Millions, a 12-state lottery co-op, and the same taxing scenario applies — and the same pay-out options. But in New York (unlike in Indiana), the jackpot is split along a nine-place winning system. First place receives only 64 percent of the lottery’s total jackpot before taxes, said John Charlson, public relations director of the New York Lottery.

"Most winners just want a long-term guaranteed cash flow and the best way to do that is to receive annuity payments from us over time," Strutt said. If Coterel had chosen the annuity he would have received about $5.6 million the first year with a 4 percent increase each year (because of inflation) for 30 years, adding up to $314.3 million, said Marc Sirkin, public relations coordinator at Indiana’s Hoosier Lottery.

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