You won the Lottery!! - What do you take?

[YuneKirby]

Lump sum. The annuity option is based on the idea that if you take the lump sum and get a small amount of interest you'll have the full amount after 26 years. Unless you're a crappy investor or can't handle your money you should be able to exceed that amount fairly easily.

And the annuity option will still get taxed around the same percentage.

[Kalis]

Its government regulated and the government will want to wet there beak so you have a choice of give them a huge tax windfall or let the government invest it in government backed securites. Either way they get there share.

Here is a quote that might explain it better from the powerball website

"WHY IS THERE A DIFFERENCE BETWEEN THE CASH PAYOUTS IN THE POWERBALL AND MEGA MILLIONS GAMES?

There used to be a larger difference between the two games, but the Mega Millions game was recently changed to mirror the Powerball annuity option. The difference (spread) between the cash and annuity jackpots amounts are now about the same. Both games offer an annuity that pays out in 30 payments over 29 years (the first payment is immediate). Both annuity options are graduated.

The very slight difference now is due to the fact that the Powerball annuity jackpot builds in a 4% per year graduated payment (the next year's payment will be 4% higher the previous year). The Mega Millions game uses a 5% graduated option, which keeps more money invested longer. That gain in earnings is somewhat offset by the different investments used by the two games. Mega Millions is invested in U.S. government strips. Powerball is invested in a couple dozen types of securities; all backed in some way by the U.S. government or agencies. It is important to understand that the lottery is invested in these securities; not the winner. The winner has a contract with the states to pay the annual prize payment, no matter what happens to the securities.

A fixed percentage of every Mega Millions and Powerball ticket sold goes into its CASH jackpot. The cash jackpot is all the money that the lottery has on hand from the sale of tickets in the game. If a player chooses the cash option, then the lottery will pay the entire cash amount to the winner (less income tax withholding amounts required by federal and state laws).

U.S. lotteries offer an ANNUITY jackpot option that can help reduce taxes and offers the winner a 100% guaranteed income stream over time. If a winner elects the annuity option, then the lottery will invest the entire cash amount BEFORE taxes are deducted. The difference between the CASH jackpot and the ANNUITY jackpot is the interest earnings that build over time."

http://www.powerball.com/pb_contact.asp

I didn't realise it was government run, but that still doesn't explain why you said "The tax comes out of your winnings so if you dont want to pay the tax you go for the annuity. Its really for your benefit and not the lotto company.", as it makes no difference to tax paid on money received.

In fact you end up paying more in taxes over the length of the annuity, just the liability is spread out over a longer term as you receive the money in instalments, i.e. you pay 35% on $500m as opposed to 35% on $300m, or $175m in tax over the term of the annuity in comparison to $110m for the lump sum.


It is faintly amusing that the US Government runs it and then taxes the winners.

[XanwardSongsteel]

I feel like with the lump sum, with sound investments, you'd have more money quickly than with the 20 year option.

[anyaka21]

I don't believe for one second that the lottery company would do anything for your benefit, otherwise there wouldn't be a penalty for taking out the lump sum as they've sold the tickets and have no reason to penalise the customer for wanting their winnings in one go, and you have to pay tax every time you receive the annuity anyway, so your answer doesn't even make much sense.

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When you have that amount of money, you have a diverse portfolio, so even with a few bad investments you won't go broke.

while true, it's just a matter of a couple of big ones going bad. And I'm pretty sure history has shown a ton of lottery winners that are now broke because they took the lump sum, spent it all and now have nothing. At least with the annuity option, you get a chance to learn what it means to have money and how to spend it and invest it from year to year.

[NatePsy]

Annuity, would I receive the 19million straight away or have to wait a year? If I get it instantly, then annuity hands down. Sure it's only 19mil a year, but at least I'll end up with more money once it's done than I would if I accepted the entire thing straight away and lost 35% of it.

[smackyslap]

s.The Annuity option invest it into something oh yeah and get some better security at my house i've seen that horror story

[yetgdhfgh]

Annuity, would I receive the 19million straight away or have to wait a year? If I get it instantly, then annuity hands down. Sure it's only 19mil a year, but at least I'll end up with more money once it's done than I would if I accepted the entire thing straight away and lost 35% of it.

Well you either get 19mil a year that will go up or get the lump sum of 300 million which im sure the interest will be just as good.

Hell you could die tomorrow and yeah your relatives will receive the payments each year but wouldn't it be better to receive the lump sum take the tax hit and just invest it you way you want to instead of letting the government invest it for you?

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I didn't realise it was government run, but that still doesn't explain why you said "The tax comes out of your winnings so if you dont want to pay the tax you go for the annuity. Its really for your benefit and not the lotto company.", as it makes no difference to tax paid on money received.

In fact you end up paying more in taxes over the length of the annuity, just the liability is spread out over a longer term as you receive the money in instalments, i.e. you pay 35% on $500m as opposed to 35% on $300m, or $175m in tax over the term of the annuity in comparison to $110m for the lump sum.

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Well its all semantics isnt it

Your average person will see well i will get a huge tax hit if i get the lump sum but if i take the annuity i dont have to pay tax even though techincally you will but you wont feel it.

I guess what would you prefer somebody taking some money off you straight away but you know that guy will never turn up again to rob you or to let the robber pay you each year but in realty hes taking a slice each time he pays you even though its your money.

[Trubo]

How are lottery winnings handled when it comes to taxes for the lump sum versus the annuity option? If the former is just taxed the year you receive the winnings then I'd take the lump sum. Poor planning may result in less than purchasing power over 20 years than the later option but at least I have the peace of mind knowing that I can pass on the winnings to family should I die between that time.

As for spending I'd probably have enough that I can finish off graduate school without having to incur debt as well as allowing my parents to retire.

[Sidewinder]

Just the idea of 1 million dollars is a lot. To spend it, you have to spend $1000 a day for almost 3 years. If i can get by on 5$ a day spending money, damn what could i do with 1k that wouldnt feel like a waste? Now multiply that by 500? less taxes, etc. but damn, thats too much money to think about. It truly is a wonder how idiots win the lotto then become broke because they blew it on all 20352059 cousins/aunts/uncles/long lost dog-trainers step house-sitters, pediatricians tennis partners, nephew that come knocking at your door

[Deleted]

Lump sum, never work again.

Also fuck charity.

[Trubo]

Just the idea of 1 million dollars is a lot. To spend it, you have to spend $1000 a day for almost 3 years. If i can get by on 5$ a day spending money, damn what could i do with 1k that wouldnt feel like a waste? Now multiply that by 500? less taxes, etc. but damn, thats too much money to think about. It truly is a wonder how idiots win the lotto then become broke because they blew it on all 20352059 cousins/aunts/uncles/long lost dog-trainers step house-sitters, pediatricians tennis partners, nephew that come knocking at your door

In today's world? Not really. It's enough to get you a decent house in most states with some left over to start up a retirement portfolio but not enough that, even if you had said living conditions, you'd retire instantly with.

As for how people lose said millions, tons of ways. Family/"friends" that come out of the woodwork until you have nothing left, winner's guilt (for lack of a better term), forgetting to actually pay taxes, etc.

[anyaka21]

Just the idea of 1 million dollars is a lot. To spend it, you have to spend $1000 a day for almost 3 years. If i can get by on 5$ a day spending money, damn what could i do with 1k that wouldnt feel like a waste? Now multiply that by 500? less taxes, etc. but damn, thats too much money to think about. It truly is a wonder how idiots win the lotto then become broke because they blew it on all 20352059 cousins/aunts/uncles/long lost dog-trainers step house-sitters, pediatricians tennis partners, nephew that come knocking at your door

Yeah, Trubo said, it's enough to get you a decent house in a decent neighborhood in most states, but a lot of markets are high and realistically, you'll get a good house but that's about it.

Take my state as an example, I live in a 30+yr old home, ranch with 4 bedrooms, 2 baths, small yard, overall a pretty small 4 bedroom, it's valued at $350,000 at last count. Truly nice homes are well over a mil these days. Sure down markets like Minnesota you could probably buy a mansion for this price, but be it depends on where you live.

[Rumred]

It all depends on the amount i guess. If its a small jackpot of around five to ten mill i prob take the annual pay and invest. If its a big one like 600 mill hell even with the lump and taxes you will clear between 100 to 300 mill haven't really looked into it but somewhere in that ball park. That is more money then i would ever hope to spend so i would take it and invest some and just use the rest as i see fit.

[LilSaihah]

lump sum because inflation

[vetinari]

the annuity will be taxed as ordinary income anyway, so the tax benefit of one over the other is negligible.

If you can get a return of more than 2.5% (dividends, capital gains, interest payments, whatever), then the lump sum is better.

[Deleted]

Lottery taxes? Hilarious.

Well, to be fair, even though our Finnish lottery is tax free, the most it's ever gone up to is like 15 million or something, so I guess 35% taxes off of $500 would be more.

[Tirivaria]

How are lottery winnings handled when it comes to taxes for the lump sum versus the annuity option? If the former is just taxed the year you receive the winnings then I'd take the lump sum. Poor planning may result in less than purchasing power over 20 years than the later option but at least I have the peace of mind knowing that I can pass on the winnings to family should I die between that time.

As for spending I'd probably have enough that I can finish off graduate school without having to incur debt as well as allowing my parents to retire.

For Americans, the relevant tax is Income Tax. If you take the lump sum, it counts as income in that year. If you pick the annuity, each payment counts as income in the year it is received. For the amounts we've been throwing around in this thread, the tax difference is relatively negligible. Most of it will be taxed at the top marginal rate in the year it is received regardless of the lump sum or annuity option.

As for the non-US lotteries being tax free: In the US, the income tax is authorized by the 16th Amendment to the Constitution.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

That "from whatever source derived" is key. We've further added laws and regulations dividing up income and classifying different sources to be taxed in different ways: ordinary income, investment income (capital gains tax), gifts and inheritance.

Generally, outside of de minimis rules, anything you receive counts as income subject to tax whether it is money or not (like a new car prize). About the only thing I can think of that is excepted is the Nobel Prize. There may be some other prizes that fall into the same category as the Nobel, but I'm blanking on them at the moment.

[Fuiking]

I am really surprised by the amount of people choosing the Annuity option.

I could have sworn it was common sense to take the lump sum. For various reasons already stated.

Ouch taxes in my country (we dont have a 500million euro lottery tho) would be such a dread moment. 33% taxes to government for winning that price (2% less then the usa) Investment taxes is pretty high for Holland, however corporate taxes aren't (for the big ones) + taxes over the amount of dividends (which has it own taks too) + income taks, and a very low rent percentage currently 1.25% (if you're like me, investing is bad in my country due to almost no natural resources)

[Naxere]

Lump sum, never work again.

Also fuck charity.

You'd still work with the annuity option of $19 million a year?

I'd take the annuity. I don't know what I'd ever spend $19 million on in my lifetime, let alone a year. That's more than enough to do everything I've ever wanted.

[Drikkink]

Lump sum then buy a majority of the Comcast / Time-Warner Shares....I'm going to start my own World Domination and I'm starting with the Internet!

Hate to break it to you, but majority in Comcast/Time-Warner is almost certainly well over 359 mil.

Yep, the deal to buy just Time-Warner was 45 BILLION.