Lottery deals are explained here.

One client of ours, Dan, decided he liked the higher yield and annual payments offered by a lottery deal.

He  used his IRA to purchase a 15 year lottery payment stream. He was 62 years old, and planned to retire soon.  With an active lifestyle, he did not anticipate a lifespan past age 80.  He was also planning to sell his business, and had an expensive home.  He had no shortage of assets, but he needed a little more income.

He used his IRA funds to produce an annual income, and he was very good at budgeting.  He knew that he could live within his income means, and he really likes the fact that the income was secured by Treasury bills.

It didn’t matter to Dan what state the lottery was in, because he already had tax returns in a variety of states.  Adding one more was easy.  Plus, in his IRA, the self directed IRA custodian handled the tax return to claim a refund from the withholding taxes held by the state where the lottery was issued.

By buying a lottery income, Dan was able to secure a yield of 5%, whereas other immediate income secondary annuities paid 4% to 4.5%.  He liked the extra yield, and did not mind the slight extra work of a tax return and annual payments.