California's $1.2B Lottery Winner Opts for $571M Payout—Here's Why That was a Brilliant Money Move

The California Lottery revealed that Rosemary Casarotti won the £974.83 million ($1.26 billion) Mega Millions jackpot from the 27th December drawing. The winning numbers were 3,7, 37, 49, and 55 for the white balls and 6 for the gold Mega Ball.

Casarotti bought the winning ticket at a Sunshine Food and Gas Circle K location in Cottonwood, California. The jackpot grew over 31 drawings, and she reportedly won the fifth-largest jackpot in the lottery's history.

The California Lottery mentioned that Casarotti sought privacy and even 'declined to participate' in the press conference, revealing her identity.

'I had the pleasure of speaking with Rosemary by phone following her win, and I can tell you with certainty how grateful she is and how happy she is to have won this money and to have supported public schools,' stated California Lottery spokesperson Carolyn Becker.

California Lottery director Harjinder Shergill-Chima noted that the state lottery raised 'an estimated £69.24 million ($89.5 million) for public schools' due to the $1.2 billion Mega Millions win. Only two billion-dollar jackpot winners emerged from the Mega Million drawings in 2024, including Casarotti.

Why Did Casarotti Receive Only Half The Jackpot Winnings?

Casarotti had the option to choose the one-time cash payout option or receive the winnings as an annuity over 29 years. She chose the one-time cash option to pocket £441.76 million ($571 million) in a lump sum payment.

There are several reasons why she received half of the jackpot win. Firstly, the total amount of the lottery prize is calculated based on the winner selecting the annuity payment option. The base amount is invested on your behalf, and you earn interest on it for almost three decades. This is the only way to receive the complete jackpot amount and potentially defer taxes.

Secondly, the Internal Revenue Service (IRS) rules direct lottery agencies to withhold 24% of winnings if you choose the lump sum payments option. Federal and state taxes take away a large chunk of the prize money.

While most US states impose state taxes, California is among the few that don't charge them. However, if you fall into a higher income tax bracket, the federal tax rates could surge to 37%. Note that your entire income isn't taxed at the same rate since the federal tax system is tiered, meaning that different parts of income are taxed at different rates.

The Lump Sum Option is a Better Move for the Long-term

While a one-time payment could lead to high tax rates, a giant pile of cash at once can help one immediately clear debt, fulfil financial aspirations, and offer more control over how to use it. Although an overnight lifestyle upgrade increases the chances of impulsive spending and mismanagement of funds, enlisting a financial adviser's help could be beneficial in growing and protecting the funds.

Shark Tank's Kevin O'Leary believes the best decision is the lump sum amount. He recommends taking the cash pile and investing half of it in an annuity to pay yourself monthly income while investing the rest in stable dividend-paying stock for passive income and capital appreciation. Several experts echoed his views that investing money under the guidance of a fiduciary financial adviser could generate more money over time.