I am just curious which would be better tax-wise, etc. This is so I can prepare for when I win ;-)
2007-03-19 08:42:05 · 10 answers · asked by Hippie 2 in Business & Finance ➔ Personal Finance
lump sum and then I could invest what I want to invest in and watch it grow. If you die before the 30 year payments are up, the money is forfeited. Your heirs don't get the money (or charities if your estate goes to charities).
2007-03-19 09:18:10 · answer #1 · answered by mldjay 5 · 0⤊ 0⤋
Actually, the prior poster is incorrect. There was a lawsuit some time ago about annuity payments. They can be willed, just as any other asset can. You simply set up a Trust fund. The payments then go to the trust.
Annuity is always a more practical idea. With the lump sum, you will immediately lose half in taxes. Annuity, you only lose about 8-9% (depends on your state).
For example, Let's say you win a jackpot of $1,000,000 from the California lottery. The lottery rules say that total will be paid out to you in 20 equal annual payments of $50,000 each. Alternatively, you can take the lump sum cash value, which is about half the face amount, about $500,000. Which should you take? To find out, we need to determine what kind of interest rate you'll be getting with the annuity. Punching a few numbers into my calculator, I find that if we start with a cash value of $500,000 and expect to wind up with $1,000,000 after 20 years (in other words, the equivalent of a $50,000 annuity), the underlying annual interest rate has to be 8.92%. Beats the heck out of losing 50%, no?
Plus you have a guaranteed "salary" every single year. What happens if you invest poorly with your lump sum? You end up with nothing left.
2007-03-19 08:53:21 · answer #2 · answered by mistress_piper 5 · 1⤊ 0⤋
Taking the lump sum is better. If you take annual payments, you can't earn any interest on all the money you have yet to receive--the lotto company does though. Plus your payouts stay the same, but their value decreases big time due to inflation over the decades. It's best to receive a lump sum, invest it, and pay YOURSELF annually. That way you get the same payout, but the principal continues to grow. You'll be way better off.
If you notice, all the lotto winners who say they consulted with a financial advisor before coming forward end up taking a lump sum.
2007-03-19 11:29:16 · answer #3 · answered by lizzgeorge 4 · 0⤊ 0⤋
Because you hit the top bracket of income tax long before $200,000 annually, you might hit it either way, so no difference.
The main difference is that most state sposnered lotteries have the clause that they will only pay you. So if you take the annuity and drop dead tomorrow, your family will NOT get the rest of the payments.
For that reason alone, I'll take the lump sum.
2007-03-19 08:47:08 · answer #4 · answered by Gem 7 · 0⤊ 1⤋
Lump sum. You take the tax hit right away, and then have a large amount of cash to do with what you will.
Plus, there's no guarantee of how long you'll live, so enjoy it while you can.
2007-03-19 08:50:28 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Tax wise I hear the annuities work out for the best. I am young (24) so if I won I would defenitely take the annual payments for tax reasons and to be sure I didn't blow it all!!!
2007-03-19 08:45:27 · answer #6 · answered by Me 6 · 0⤊ 0⤋
lump sum..but it depends on how much i really won..
even then i guess i would take the money right now and pay the taxes and get it over with..
2007-03-19 08:45:49 · answer #7 · answered by Louella R 5 · 0⤊ 0⤋
lump sum
2007-03-19 08:45:10 · answer #8 · answered by Anonymous · 0⤊ 0⤋
It depends on amount and the difference between two options .
2007-03-19 08:49:47 · answer #9 · answered by xeibeg 5 · 0⤊ 0⤋
Cash! For tomorrow is not promised...............
2007-03-19 08:49:25 · answer #10 · answered by Tennessee Mom 4 · 0⤊ 0⤋