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Annuity or Lump Sum?

Topic closed. 74 replies. Last post 4 years ago by redhot7.

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Which one? Please pick!

Annuity [ 15 ]  [23.44%]
Lump Sum [ 49 ]  [76.56%]
Total Valid Votes [ 64 ]  
Discarded Votes [ 4 ]  
Teddi's avatar - Lottery-008.jpg

United States
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May 13, 2013
1203 Posts
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Posted: May 17, 2013, 10:22 pm - IP Logged

An annuity guarantees an income for someone bad at saving.  Lump sum can be good if you invest and save, your taxes are paid up front.  Annuity are subject to tax increases each year but you still have guaranteed income.

 

Just myopinion.

I used to believe the ones bad with money who take the annuity do better if for no other reason they couldn't spend it all at once. But that isn't the case. They still manage to lose it all. They overextend themselves, end up having to take out loans against future payments, or worse still, they fall prey to those companies who buy future annuity payments for a lump sum cash payout which is bubkis and they spend it all.

If a person is bad with money, they're always bad with money, regardless of the amount. They should go ahead, take the lump sum, get put on a budget. Given a monthly allowance and nothing more, then perhaps have a parent be a co-signer on main deposit accounts. No one can withdraw any amount over $x without 2 signatures.

    weshar75's avatar - Lottery-042.jpg
    Mcminnville, Oregon
    United States
    Member #3013
    December 13, 2003
    3090 Posts
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    Posted: May 18, 2013, 12:08 am - IP Logged

    I am taking the cash because I am afraid that the powers that be in washington are going to want more tax dollars over the life of the annuity.  So forget paying higher taxes every year and pay only once with the lump sum.  Now winning is the hard part.-weshar75

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      redhot7's avatar - SetforLifeLogo
      California
      United States
      Member #112364
      June 17, 2011
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      Posted: May 18, 2013, 12:17 am - IP Logged

      I am taking the cash because I am afraid that the powers that be in washington are going to want more tax dollars over the life of the annuity.  So forget paying higher taxes every year and pay only once with the lump sum.  Now winning is the hard part.-weshar75

      US Flag

      You still need to pay taxes if you invest your lump sum.
      You still need to pay property taxes if you buy luxury items.
      You still need to pay gift taxes if you give a substantial amount (>12K) to your family and friends.

      Unless you don't want your lump sum to grow and you just spend and spend for yourself, there is no way to avoid taxes.

        helpmewin's avatar - dandy
        u$a
        United States
        Member #106665
        February 22, 2011
        19964 Posts
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        Posted: May 18, 2013, 12:34 am - IP Logged

        who cares

        money go up, money go down, the world will still go around and aroundLOL

        Let it Snow Snowman

          Teddi's avatar - Lottery-008.jpg

          United States
          Member #142499
          May 13, 2013
          1203 Posts
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          Posted: May 18, 2013, 1:05 am - IP Logged

          You still need to pay taxes if you invest your lump sum.
          You still need to pay property taxes if you buy luxury items.
          You still need to pay gift taxes if you give a substantial amount (>12K) to your family and friends.

          Unless you don't want your lump sum to grow and you just spend and spend for yourself, there is no way to avoid taxes.

          They've upped it from $12k to $14k, and you can give away up to $5M (I think) before the gift tax kick in.

            redhot7's avatar - SetforLifeLogo
            California
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            June 17, 2011
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            Posted: May 20, 2013, 12:09 am - IP Logged

            I forgot to mention that you don't pay social security and medicare taxes from the lottery but if you take the lump sum and then invest it, you would need to pay such taxes from your investment.

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              London
              United Kingdom
              Member #140684
              March 24, 2013
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              Posted: May 21, 2013, 12:59 pm - IP Logged

              We can only take a lump sum in the UK, but I would pick that anyway. There is no difference to it anyway as we don't pay tax in the UK on them. Those companies who buy your future payments for a lump sum should be banned.

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                Jill34786's avatar - Lottery-006.jpg
                Windermere, FL/Franklin, TN
                United States
                Member #50210
                March 1, 2007
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                Posted: May 21, 2013, 2:02 pm - IP Logged

                I forgot to mention that you don't pay social security and medicare taxes from the lottery but if you take the lump sum and then invest it, you would need to pay such taxes from your investment.

                Lump sump payout recipients are not the only ones responsible for taxes from future investments or earnings. Those who choose the annuity and invest will be obligated as well.

                ** Some people fulfill their dreams by receiving entitlements from the Government while others wake up and work hard for it! **

                  redhot7's avatar - SetforLifeLogo
                  California
                  United States
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                  June 17, 2011
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                  Posted: May 21, 2013, 6:41 pm - IP Logged

                  Lump sump payout recipients are not the only ones responsible for taxes from future investments or earnings. Those who choose the annuity and invest will be obligated as well.

                  Please note that I am talking about exemption from SS and Medicare taxes, not general income taxes where you have to pay either way

                  If you take annuity, the lottery invested the money for you without having to pay medicare and SS taxes. You just need to wait x number of years to receive them all.

                  If you choose the lump sum and you want to grow it so that it would match the money you would have received from annuity by investing on your own, you would have to pay SS and Medicare taxes from the investment.

                    Think's avatar - lightbulb
                    Marquette, MI
                    United States
                    Member #20541
                    August 20, 2005
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                    Posted: May 24, 2013, 12:03 am - IP Logged

                    Which one? I need to know. It's important... I need feedback. 

                    That would depend on how big the Lump Sum is and what the Taxes are at the time of the Win and how old you are and what your plans are.  It isn't  as simple as either or.

                    Last year the taxes where better and it would have been easier.  This year your taxes get screwed up pretty fast between $150,000 and $400,000.

                    Next year they are considering fining people for giving money to charity if they are over the 28% fed tax bracket.  So you have to consider that if you are pushed over the 28% bracket if you want to pay the fines on your charitable contributions.  They have not enacted the fines yet and they may not but my point is that there is a whole slew of stuff to consider.

                      Think's avatar - lightbulb
                      Marquette, MI
                      United States
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                      August 20, 2005
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                      Posted: May 24, 2013, 12:18 am - IP Logged

                      You still need to pay taxes if you invest your lump sum.
                      You still need to pay property taxes if you buy luxury items.
                      You still need to pay gift taxes if you give a substantial amount (>12K) to your family and friends.

                      Unless you don't want your lump sum to grow and you just spend and spend for yourself, there is no way to avoid taxes.

                      That is now $14,000 per person per year exemption before it is applied to your life time exemption.

                      As an illustration Couple A B can give couple C D $56,000 per year.

                      A gives C 14k and A gives D 14k  B gives C 14k and B gives D 14k = 56k per year from A B to C D and if Couple C D has kids then A B can obviously  give 14k+14k or 28k to each kid.

                      Any more than that and it starts going into the life time exemption.

                      If you win and you want to figure out anything different than that then get a Tax Lawyer.

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                        Inland Empire
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                        October 22, 2011
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                        Posted: May 24, 2013, 12:05 pm - IP Logged

                         I know that it's basically free money, but it still sucks to pay 40% of the cash value...I would still get lump sum though.

                         BTW, is it possible to ask the lottery commision to just withold the entire actual tax amount that I have to pay? I know that it sounds weird but for the sake of management this should be easier to manage.

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                          Inland Empire
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                          October 22, 2011
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                          Posted: May 24, 2013, 12:06 pm - IP Logged

                          I forgot to mention that you don't pay social security and medicare taxes from the lottery but if you take the lump sum and then invest it, you would need to pay such taxes from your investment.

                           Depends on what kind of businees and investment you make. You will still find some ways to get tax deduction if you have a good financial team.

                            Jill34786's avatar - Lottery-006.jpg
                            Windermere, FL/Franklin, TN
                            United States
                            Member #50210
                            March 1, 2007
                            843 Posts
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                            Posted: May 24, 2013, 1:12 pm - IP Logged

                            Please note that I am talking about exemption from SS and Medicare taxes, not general income taxes where you have to pay either way

                            If you take annuity, the lottery invested the money for you without having to pay medicare and SS taxes. You just need to wait x number of years to receive them all.

                            If you choose the lump sum and you want to grow it so that it would match the money you would have received from annuity by investing on your own, you would have to pay SS and Medicare taxes from the investment.

                            First off, I respect your opinion in your support of annuities. I would just like to clarify a few things.

                            The lottery "invest" your annuity by getting long term Government bonds that pay about 1.5% annually. If a persons chooses an annuity instead of the lump sum and decides to invest it, then they too are responsible for the same taxes that a lump sum recipient.

                            It sounds to me that you are referencing a scenario in which a winner who takes the annuity option doesn't have to pay any additional taxes based on the assumption that the yearly proceeds will not be invested.

                            The sole $591 million PB winner in Florida will be subject to an additional $17 million just in Federal taxes when compared to 2012 rates. In the future, none of us have any idea what will happen to the top Federal tax rate. There is a great deal of uncertainty where many other taxes could be implemented...such as a wealth tax.

                            ** Some people fulfill their dreams by receiving entitlements from the Government while others wake up and work hard for it! **

                              redhot7's avatar - SetforLifeLogo
                              California
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                              June 17, 2011
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                              Posted: May 24, 2013, 6:05 pm - IP Logged

                              First off, I respect your opinion in your support of annuities. I would just like to clarify a few things.

                              The lottery "invest" your annuity by getting long term Government bonds that pay about 1.5% annually. If a persons chooses an annuity instead of the lump sum and decides to invest it, then they too are responsible for the same taxes that a lump sum recipient.

                              It sounds to me that you are referencing a scenario in which a winner who takes the annuity option doesn't have to pay any additional taxes based on the assumption that the yearly proceeds will not be invested.

                              The sole $591 million PB winner in Florida will be subject to an additional $17 million just in Federal taxes when compared to 2012 rates. In the future, none of us have any idea what will happen to the top Federal tax rate. There is a great deal of uncertainty where many other taxes could be implemented...such as a wealth tax.

                              It sounds to me that you are referencing a scenario in which a winner who takes the annuity option doesn't have to pay any additional taxes based on the assumption that the yearly proceeds will not be invested.

                              That's not what I was referring at all. I am just referring to SS and medicare taxes, not income taxes that applies to both choices.

                              I already clarified this in the message you replied to:
                              "Please note that I am talking about exemption from SS and Medicare taxes, not general income taxes where you have to pay either way "

                              And I am fully aware that 25% is just a withholding taxes for both choices. They may have to pay more or less depending on how much they won.

                              Winners who choose annuity would put themselves at a lower income tax bracket especially if they won small amount like 10M divided over the course of 26 years. Winners who choose lump sum would put themselves at a higher income tax bracket even when the jackpot is 'only' 10M.