Tax on interest question

Reply #12

sirbrad — Thu, 23 Mar 2006 23:28:11 GMT

Sooo no further taxes on lucky for life then but the annual 25% a year

Reply #11

jim695 — Thu, 23 Mar 2006 14:28:09 GMT

danisiri said:

One of the caveats of munis though is that some are subject to the AMT, which is an alternative federal tax - that hopefully will go away soon. Until then, though, when you buy munis, be careful to avoid those subject to the AMT.

____________________________________________________

An excellent point, and one I neglected to mention.

The Alternative Minimum Tax, however, isn't limited to tax-free municipal bonds; it can surprise you when you least expect it, dependin... [ More ]

Reply #10

delS — Thu, 23 Mar 2006 13:23:13 GMT

Very informative and enlightening thread! LP members are interesting people.

Reply #9

danisiri — Thu, 23 Mar 2006 10:26:29 GMT

Interesting thread here. I agree that federal tax on long-term capital gains is capped at 15%. But, for interest income (e.g., from non-muni bonds and CDs), it is taxed at your income tax bracket (currently at 35% for the highest level - which you would be if you generate over $314000 in income).

I agree though that muni bonds are the best way to go to avoid federal income tax. If you can get munis in the state you reside, they are often exempt from state tax and even from local tax as wel... [ More ]

Reply #8

sirbrad — Thu, 23 Mar 2006 08:40:59 GMT

How about lucky for life? Say you collect the $36,000 a year ($27,000 after 25% deduction) Would you still have to pay any taxes yearly on the principal alone if it is not earning any interest? I would hope not, the 25% deduction already kills the amount won enough as it is.

Reply #7

ryanm — Thu, 16 Mar 2006 17:10:09 GMT

Yep, money may not buy happiness, but the freedom that is associated with winning a Powerball or Mega Millions jackpot certainly would make me very happy

Reply #6

sirbrad — Thu, 16 Mar 2006 07:40:19 GMT

Yes I agree. I also figured I would not even need over a million to live fine for a very long time, as I have no kids nor much family at all. That is the way I like it for now, as I wish to enjoy my youth for awhile. As I said in another thread, I by no means need very much in interest to be very well off, and even $30,000 a year would be plenty for me now. Although I would like the security of a few more million, I won't be complaining about winning a million or two.

I could easily live off... [ More ]

Reply #5

jim695 — Thu, 16 Mar 2006 07:21:18 GMT

There are two ways to approach this problem:

First, you have the option of keeping your job and living off what you earn for the first year while waiting for your investment to grow into that first interest payment. The second method is to keep the millions intact and live off the change for the first year.

For example, let's say you win a twenty-million- dollar jackpot, and you elect to take the cash option. Assuming a cash value of 55% of the advertised jackpot, this would leave you wit... [ More ]

Reply #4

sirbrad — Thu, 16 Mar 2006 03:39:53 GMT

That was a great post again, thanks. As I write this, short-term CD's and bonds are paying a higher yield than their long-term counterparts, such as stocks, for example. I think CD's has always been the way I would want to go for their security alone, as I said in another thread I do not plan on blowing a ton of money so I do not need to earn a ton. Depending on the jackpot size, the interest of 4%, or even 3% on a million or two would far exceed my goals.

$10 million or more would simply b... [ More ]

Reply #3

jim695 — Thu, 16 Mar 2006 00:13:15 GMT

1). How often the interest is paid depends entirely upon how your trust is structured. You might elect to take your interest payments quarterly, bi-annually or annually. To take full advantage of the long-term capital gains tax, however, you should opt for the annual interest payment. You'll only be taxed on the interest earned, regardless of how often you draw it off; your principal is taxed only once, at the time you claim your jackpot. Provided you never dip into it, that principal will remai... [ More ]

Reply #2

sirbrad — Wed, 15 Mar 2006 12:13:03 GMT

Thanks for all that info Jim695. How often is interest paid, the first month? Yearly? I never invested in anything before, so what do people mean by risks? Is there some chance that you could lose all your money? How do you know what is a safe investment, and what is not? Is there where financial planners, and advisors come in? Are they even a good investment?

Can you legally make sure that you do not lose any money, or get it back if you have to legally? What is the highest yielding inve... [ More ]

Reply #1

jim695 — Wed, 15 Mar 2006 06:06:45 GMT

Currently, the federal tax on long-term capital gains (366 days or more) is capped at 15%.

If you set up a trust immediately following your major win, your ten-million-dollar jackpot would pay you $340,000.00 per year net, minus any state and local taxes, which can vary widely.

However, by putting part of it into carefully selected municipal bonds, it's possible to reduce your tax burden to almost nothing. In the past, munis weren't considered to be good investments on a large scale, but... [ More ]

Tax on interest question

sirbrad — Wed, 15 Mar 2006 05:38:48 GMT

Anyone know how much tax is assessed on interest? Say you invested $10 million at a 4% return. Also how quickly do you receive the first interest payment, the end of the month, or immediately? I think the interest amount would be something like $400,000 a year, and $33,333 a month at that rate. So how much would go for taxes