What Is a Lump Sum and When Would You Get One?

gavel on money

The largest lottery jackpot got up to $1.59 billion in January 2016. If you won that much money, would you want it in all one lump sum or in monthly distribution?

Winning the lottery isn’t the only way to get a lump sum though. Your job may offer it as well! for your retirement accounts.

But what is a lump sum, and when should you accept it? Keep reading to find out!

What is a Lump Sum?

A lump sum is a large payment that you can get in one single payment. Normally these payments may be broken up into monthly payments.

A large payment can be a lottery payout, a pension plan, retirement plans, or a 401(k), or IRA. With a retirement account, the retiree might opt to have one large sum paid out all at once.

If you want to learn more about the difference between a lump sum and monthly payments, check out this link here!

Pros and Cons

One of the advantages of having a lump sum payment is that they’re tax-free (up to 25%). However, monthly payments might be considered income, which means that they can be taxed. That’s why a lot of people take out the maximum amount that they can.

It also gives you a big boost in how much cash you have available, which can be useful if you want to use it to pay off your debt or buy a large purchase.

It also gives you more money to invest all at once, which could yield a greater return in the end.

However, if you’re not good at managing your money, you may want to go with an annuity payment. This only gives you a limited amount of money to play with, and you know that you’ll have more money coming in the future, so it could provide more financial security.


As we mentioned earlier, you’ll be taxed up to 25% from your money pot when you first withdraw the money. However, the rest of the cash will be exempt from tax, and it won’t depend on how much cash you get.

However, this could impact your yearly income. When you file your taxes the next year, it could end up pushing you into a higher tax bracket which means that you would have a higher tax percentage on your income.

That’s why you should always talk with your tax agent before you take out a large payment.

Learn More About Managing a Lump Sum Payment

These are only a few things to know about a lump sum payment, but there are many more things to keep in mind!

We know that managing your money can be stressful and overwhelming at times, but we’re here to help you out.

If you enjoyed this article, make sure that you explore our website to find more articles just like this one.

Leave a Comment