What Happens to Winning a Lottery Jackpot?

As the latest Powerball jackpot climbs toward a billion dollars and the number of winning tickets approaches one, it’s worth taking a closer look at this strangely addictive form of gambling. What’s behind the odds of hitting a prize so large and what happens to the money once it’s won?

How the lottery works

Lottery winners get two choices: a lump sum payout or an annuity that pays out over several years. The choice depends on how quickly you’d need to spend the money. Choosing the annuity could help you save on taxes if you don’t need the entire amount immediately. It can also be an attractive option for those who want to bequeath their winnings to heirs.

Where lottery revenue goes

The 44 states that operate lotteries take in about a third of all jackpot proceeds, which translates to about a dollar per state resident. That’s a lot of money that some states would probably prefer to use to help pay for schools, roads and other services.

But how much of the lottery revenue is actually spent on prizes? The answer isn’t as simple as “most of it,” because each state distributes its proceeds in different ways. For example, Florida uses a portion of lottery revenues to fund public education, according to the state’s lottery website.

If you’re the lucky winner of a lottery jackpot, you’ll face plenty of financial decisions. While most of those are personal finance 101 — pay off debt, set up savings for retirement and diversify your investments — there’s one piece of the puzzle that you can’t farm out to an adviser: the psychological impact of sudden wealth.