(NEXSTAR) — The Powerball jackpot has grown again, reaching an estimated $1.2 billion ahead of the next drawing. That makes it the third-largest Powerball jackpot on record, and the seventh-largest lottery prize in U.S. history.
If you’re lucky enough to beat the overwhelmingly challenging odds of winning the jackpot — 1 in 292.2 million — there are a number of steps experts suggest following. That includes building your team — a financial advisor, a tax advisor, and a lawyer are highly recommended — and keeping the ticket secure.
Once you’re ultimately ready to come forward and claim your prize, you’ll have a big decision to make: take the annuity option or a lump sum payment. The first is represented by the estimated $1.2 billion while the second is the cash value, currently listed as $551.7 million.
The cash option serves as the amount of money Powerball officials have determined is necessary to fund the annuity option (a one-time payment followed by 29 annual payments that increase by 5% each time).
If you want your money right away, you’ll want to select the cash option. If you want more money in the end, you may prefer the annuity option.
But how do you know what’s best for you?
“Most people take the lump sum, because they want the money, they want to control it,” Robert Pagliarini, president and chief financial advisor for Pacifica Wealth Advisors and author of “The Sudden Wealth Solution,” tells Nexstar. “I honestly think most people are probably better off taking the annuity.”
As mentioned, the annuity option means you’ll receive a check every year with another portion of your lottery winnings. While that annual allowance may sound annoying to a newfound jackpot winner, it can also help protect you.
Pagliarini explains that if, for example, you screw up with your money — maybe you make some bad purchases, spend too much of it, or give too much away — and decided to go with the cash option, “there’s no do-over, there’s no reset.”
“But with the annuity, you get to redeem yourself every single year,” he continues. “It might take a few years, it might take five or six years, but eventually you’ll figure it out.”
There are other aspects to consider. With the lump sum, for example, you’ll see a large chunk of it withheld for taxes. Every state is required to withhold 25% in a federal lottery tax, After additional withholdings, you’ll be losing roughly 37% of your jackpot to taxes. Then, depending on where you live, you’ll see even more withheld for state taxes.
If you are lucky enough to land the Powerball jackpot though, “there’s no bad choice” when it comes to your payout, Jeremy Keil, a financial adviser from Wisconsin, told the Associated Press last year.
Keil said Powerball’s annuity assumes a 4.3% investment gain of the jackpot’s cash prize.
“If you think you can beat the 4.3%, you should take the cash,” Keil said. “If you don’t, take the annuity.”
Matt Chancey, an investment adviser in Tampa, Florida, also urged winners to understand that if advisers earn a percentage from the investment of all that money, they have a financial stake in how the money is paid out and should be clear about any potential conflict. He said talented investors probably could make more money than paid through an annuity, but there is risk and advisers need to be open about their potential gain depending on the jackpot winners’ choices.
Regardless of what option you pick if you win the Powerball jackpot, Pagliarini encourages building your team of experts, signing the ticket and keeping it secure, and “make [your payout] decision as fast as you possibly can, in a way where you feel very comfortable about the decision.”
Powerball tickets are $2 each and sold in 45 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. Drawings are held every Monday, Wednesday, and Saturday at 10:59 p.m. ET. You have a 1 in 292.2 million chance of winning the Powerball jackpot and a 1 in 24.9 chance of winning any Powerball prize.
Jeremy Tanner and The Associated Press contributed to this report.