Mega Millions: How a billion-dollar jackpot actually works

The Mega Millions jackpot has ballooned to an estimated $1.02 billion ahead of the next drawing on Friday, July 29. A billion dollars is not an easy number to wrap your head around, and it’s happened only twice before in Mega Millions history.

If you want a chance to win the jackpot, here’s what you need to know.

How to buy a Mega Millions lottery ticket

Mega Millions can be played in 45 U.S. states, as well as Washington, D.C., and the U.S. Virgin Islands. Players can buy as many $2 tickets as they want. Each ticket requires you to pick five numbers between 1 and 70, and a sixth number between 1 and 25 (or, you can let the lottery folks generate the numbers for you). The jackpot goes to the person (or people) who pick all six numbers correctly.

Your odds of doing that are roughly 1 in 303 million.

Though it’s a national game, each participating state has its own rules about how to claim a reward. In fact, the length of time you have to file your claim can range from 90 days to a year from the date the numbers were drawn. Make sure you review the rules in the state where you purchased the ticket.

How much could you win?

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

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

If you took the annuity option instead, you could get roughly $15.3 million for the first payment. Then each one after that increases by 5%. If you die before all of the annual payments are 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 certified financial planner — said in an email.

Kirchenbauer also said that anyone who finds themselves suddenly wealthy should put together a team of professionals, including an attorney, accountant and financial planner.

“Your team will help you decide which option is best for you,” she 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. To start, according to the IRS website, 24% of your winnings are withheld. How much that is depends on whether you went for the cash or annuity option, since you only pay taxes on what you receive in a given year.

If you take the cash 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.

Come April, you’d likely owe 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 all probably dreamed about, no one is prepared to win the jackpot. If you do, protect your ticket. Whoever possesses a winning lottery ticket can file a claim for the award.

Next, consider your anonymity. Each state has its own laws about whether lottery winners have to be publicly identified. 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 in touch.

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