The listed amount is actually an annuity that pays out over like 25 years. The base lump-sum amount is usually only around half of the listed amount. So a $2b win would only pay out about $1b in cash. And then that cash amount is heavily taxed.
You should almost always choose the cash option even if the annuity is a “larger” total, because the annuity’s rates very rarely beat inflation rates over the 25 year time period… So you’re better off just taking the cash as a lump sum and investing it in index funds and bonds, which will virtually always beat inflation rates over time.
But all of this is to say, it’s not quite an 80% tax rate. It’s more like 55%, once you consider the fact that the cash option is already only about half of the listed winnings.
It’s about the annuity amount. You’re right in a straight race to make as much money as possible. But once the annuity reaches something like 200k it’s far safer for most people to take the annuity. You can buy nice things, quit your job, and invest. Crucially though, if you fuck everything up, you get topped up again next year. It’s an exercise in how much money do you really need? For example how much boat could you buy and maintain for 8k/mo? I suspect the answer is, a lot.
it was a $2.04b jackpot. would have paid out that much as an annuity over like 25 years or something. taxes would have been withheld from those payments.
the ‘lump sum’ option was $997.6m, which is what the winner opted for. after taxes the amount received was actually $628.5m.
Lottery winners usually have a choice of getting their winnings paid out over the course of twenty or thirty years, or as one lump sum. If they take the lump sum the winner only gets about half of what they would with the annual payments. So assuming this guy took the lump sum and got $1B the tax would be closer to 60%. Still a lot, but $450M is nothing to sneeze at.
Getting the money over 20 years seems so stupid, it won’t give you any interest and over 20 years just because of inflation it will be probably worse than 50% less…
And yet at 40 million a year, I don’t think inflation is going to bother you ever again. That’s good advice for relatively small payouts like 10k, but at a certain point the annuity becomes an effectively unlimited credit line.
That depends entirely on how good you are at managing your money. With regular payments you’d still have a ridiculous amount of money even the first month, and no matter how badly you fuck up you’re still rich 20 years from now.
The merits of lump sum versus annuity aside, the point is that the headline number comes from a naive total of how many payments are made in the annuity option. So when it’s listed as a $2 billion jackpot, it’s actually worth something closer to half of that as a lump sum.
That wouldn’t work to reduce lottery taxes. The lottery itself isn’t return on investment in stocks or whatever, and can’t be held indefinitely the way an appreciating stock can.
The way it works in America is that the amount they tell you is after a 30 year annuity, so you obviously get a lot of interest there. It also lets them bump their numbers up which makes it more attractive I guess. Currently Powerball is at 320 million with a cash value (or lump sum) of 150 million. After that you get taxed and knocked down more so you might end out taking home around 100 million. As someone who has not won, I can say that sounds like bullshit, but if I did win, well I wouldn’t be complaining. What would I use the extra money on anyhow? Get some dude who wears orange facepaint the presidency? Hard pass. I’d have to be a gigantic friendless turbo nerd to do some shit like that.
I know I am the minority in this but I would take the 30 year payment. Let’s use the 320 million as the example. It would prevent me from spending it all on dumb shit and I could easily live off of 888,000 a month pre tax. Pay off all debts right away and force me to save up for any huge thing I want.
It would also pass to my kids if I die in the next 30 years.
It is still in your favor to take the lump sum, then invest it yourself. Even low risk low return you’ll likely end up way ahead compared to the payment plan.
For me, I have two concerns (like it matters, I’m never winning). The organization running the lottery could fold and I can likely make more investing the lump sum myself. Plus I really want to start a nonprofit grocery chain.
Even worse is that if the state you won in had financial issues they can and will hold payments until the budget is balanced. I recall hearing something about Illinois holding lottery payments when there was a shutdown.
Facts and statistics say the organization running the lottery is IMMENSELY less likely to run out of money than YOU. Take the annuity. Winning the lottery does not suddenly make one smart with money.
Up until recently, I’d take the annuity, but right now, the stability of the underlying currency and the organization that pays out is in serious doubt.
Even in today’s political climate I’m pretty sure the State of California will still be able to make your payments over 30 years. If you didn’t spend it on anything else, you could make a start on that grocery chain. You’d probably learn a lot in the first few years, some expensive lessons. But having started small, you could put the next payments towards putting those lessons to work as you expand. Meanwhile, you’re not investing any attention or risk into those funds. But you do hypothetical you!
Editing to add, the guy who actually won might be able to do some real good in his own neighborhood, which had that big wildfire.
As an American, I don’t get it at all. I don’t WANT to talk about him unless it’s pertinent. My average blood pressure has literally gone up about 10mmHg in one month, I don’t need more stress.
With lottery prizes, the full amount is usually only available as annuity payments over 20-30 years. If you pick a lump sum, it’s typically only 40% of the full amount.
This winner chose the lump sum payment, so his lottery prize was about $600,000,000.
Damn is it really like 80% tax
The listed amount is actually an annuity that pays out over like 25 years. The base lump-sum amount is usually only around half of the listed amount. So a $2b win would only pay out about $1b in cash. And then that cash amount is heavily taxed.
You should almost always choose the cash option even if the annuity is a “larger” total, because the annuity’s rates very rarely beat inflation rates over the 25 year time period… So you’re better off just taking the cash as a lump sum and investing it in index funds and bonds, which will virtually always beat inflation rates over time.
But all of this is to say, it’s not quite an 80% tax rate. It’s more like 55%, once you consider the fact that the cash option is already only about half of the listed winnings.
It’s about the annuity amount. You’re right in a straight race to make as much money as possible. But once the annuity reaches something like 200k it’s far safer for most people to take the annuity. You can buy nice things, quit your job, and invest. Crucially though, if you fuck everything up, you get topped up again next year. It’s an exercise in how much money do you really need? For example how much boat could you buy and maintain for 8k/mo? I suspect the answer is, a lot.
it was a $2.04b jackpot. would have paid out that much as an annuity over like 25 years or something. taxes would have been withheld from those payments.
the ‘lump sum’ option was $997.6m, which is what the winner opted for. after taxes the amount received was actually $628.5m.
https://www.yahoo.com/news/2-04-billion-powerball-winner-200153929.html
whoever pulled the $424m out of their backside took another dose of taxes out of the payment that already had taxes deducted.
They did that to make it sound worse than it is.
Wait a minute… Are you suggesting someone on the internet lied for attention?! I don’t believe it!
I know, It’s getting so that you just can’t trust unsourced images of alleged tweets talking about political topics on social media anymore.
smh my head
Edit: disregard, California doesn’t tax lottery winnings on the State level
Lottery winners usually have a choice of getting their winnings paid out over the course of twenty or thirty years, or as one lump sum. If they take the lump sum the winner only gets about half of what they would with the annual payments. So assuming this guy took the lump sum and got $1B the tax would be closer to 60%. Still a lot, but $450M is nothing to sneeze at.
Getting the money over 20 years seems so stupid, it won’t give you any interest and over 20 years just because of inflation it will be probably worse than 50% less…
And yet at 40 million a year, I don’t think inflation is going to bother you ever again. That’s good advice for relatively small payouts like 10k, but at a certain point the annuity becomes an effectively unlimited credit line.
That depends entirely on how good you are at managing your money. With regular payments you’d still have a ridiculous amount of money even the first month, and no matter how badly you fuck up you’re still rich 20 years from now.
Unless the government collapses in the next 20 years and can’t pay it.
If the government collapses then your money is worthless anyways.
Oh, there’ll still be a government. But they may not be willing to ship his checks to the labor camp.
Plus, if the company goes out of business, you’re fucked.
At least in my state, the lottery is run by the state government. The taxes from it go to schools.
Dozens of people have gotten a chuckle out of this over the years. dozens!
I mean, the taxes from the lottery do. What that don’t tell us is the taxes originally earmarked for schools now go to something else.
The merits of lump sum versus annuity aside, the point is that the headline number comes from a naive total of how many payments are made in the annuity option. So when it’s listed as a $2 billion jackpot, it’s actually worth something closer to half of that as a lump sum.
Yup, you’d be far better off doing doing the “buy, borrow, die” strategy and never paying taxes like other rich people
https://www.dcfpi.org/all/how-wealthy-households-use-a-buy-borrow-die-strategy-to-avoid-taxes-on-their-growing-fortunes/
That wouldn’t work to reduce lottery taxes. The lottery itself isn’t return on investment in stocks or whatever, and can’t be held indefinitely the way an appreciating stock can.
Yeah I was referring to specifically taking a lump sum and what to do with it as opposed to taking the payment plan
Looks like the taxes are closer to 37.5%
https://lemmy.world/comment/15540664
The way it works in America is that the amount they tell you is after a 30 year annuity, so you obviously get a lot of interest there. It also lets them bump their numbers up which makes it more attractive I guess. Currently Powerball is at 320 million with a cash value (or lump sum) of 150 million. After that you get taxed and knocked down more so you might end out taking home around 100 million. As someone who has not won, I can say that sounds like bullshit, but if I did win, well I wouldn’t be complaining. What would I use the extra money on anyhow? Get some dude who wears orange facepaint the presidency? Hard pass. I’d have to be a gigantic friendless turbo nerd to do some shit like that.
I know I am the minority in this but I would take the 30 year payment. Let’s use the 320 million as the example. It would prevent me from spending it all on dumb shit and I could easily live off of 888,000 a month pre tax. Pay off all debts right away and force me to save up for any huge thing I want.
It would also pass to my kids if I die in the next 30 years.
It is still in your favor to take the lump sum, then invest it yourself. Even low risk low return you’ll likely end up way ahead compared to the payment plan.
I agree about the investment, I’m just saying that this prevents me from falling into the “ohh I can buy that” trap.
For me, I have two concerns (like it matters, I’m never winning). The organization running the lottery could fold and I can likely make more investing the lump sum myself. Plus I really want to start a nonprofit grocery chain.
Even worse is that if the state you won in had financial issues they can and will hold payments until the budget is balanced. I recall hearing something about Illinois holding lottery payments when there was a shutdown.
Facts and statistics say the organization running the lottery is IMMENSELY less likely to run out of money than YOU. Take the annuity. Winning the lottery does not suddenly make one smart with money.
Up until recently, I’d take the annuity, but right now, the stability of the underlying currency and the organization that pays out is in serious doubt.
Even in today’s political climate I’m pretty sure the State of California will still be able to make your payments over 30 years. If you didn’t spend it on anything else, you could make a start on that grocery chain. You’d probably learn a lot in the first few years, some expensive lessons. But having started small, you could put the next payments towards putting those lessons to work as you expand. Meanwhile, you’re not investing any attention or risk into those funds. But you do hypothetical you!
Editing to add, the guy who actually won might be able to do some real good in his own neighborhood, which had that big wildfire.
Fuckin hell that payment would pay off my mortgage in 20 days. I cannot fathom spending that much every fucking month
Americans try not to bring up Trump in every conversation challenge
As an American, I don’t get it at all. I don’t WANT to talk about him unless it’s pertinent. My average blood pressure has literally gone up about 10mmHg in one month, I don’t need more stress.
No, the top tax rate is 37%.
With lottery prizes, the full amount is usually only available as annuity payments over 20-30 years. If you pick a lump sum, it’s typically only 40% of the full amount.
This winner chose the lump sum payment, so his lottery prize was about $600,000,000.
Thanks everyone for replying. I forgot these rules because they’ll never apply to me…