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Why Would Anyone In Their Right Mind Choose Annuity instead of Cash Payout for Powerball?

Topic closed. 24 replies. Last post 11 months ago by sirbrad.

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san diego
United States
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December 16, 2008
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Posted: January 12, 2016, 2:52 pm - IP Logged

oh and the gov uppig top rates back to %90 being a risk prob worth considering, dont forget the witholding tax on moving large sums out of the country

I am inclined to go with annuity with guarantied a steady income stream, and can help reduce taxes. The only catch if you die along the way the federal tax is due on the balance of remaining lump sum. But the IRS will be amenable to your heir will still collect the annuity with extra taxes called penalty.

    Groppo's avatar - cat anm.gif

    United States
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    January 7, 2015
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    Posted: January 12, 2016, 4:06 pm - IP Logged

    i cant imagine filing taxes every year for the annuity payments.. pain in the A** lol

     

    If you're in a state like NY and you're greedy.. i guess someone would go for the annuity in order to get more money.

    .

    Ridiculous,

    If you're in NY and you win, the first thing you do after collection, is leave.

    Nobody in their right mind, #1 would live in NY and #2, certainly wouldn't wait around for no 30 years, if they won something that could easily take them all the way to the other side of this country.

     

    NY charges 8.8%

    NJ just across some bridge charges only 3%

    Pennsylvania?   0%

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      New York
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      July 14, 2014
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      Posted: January 12, 2016, 6:36 pm - IP Logged

      Some have made a pretty good argument for the annuity.

      what happens if you move to another State? Do you get taxed from the State you originally won it in? Do you get taxed only in your new State (if they tax income)? Or do you get hit with a possible double whammy from both States?

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        Arizona
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        March 24, 2015
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        Posted: January 12, 2016, 7:49 pm - IP Logged

        Some have made a pretty good argument for the annuity.

        what happens if you move to another State? Do you get taxed from the State you originally won it in? Do you get taxed only in your new State (if they tax income)? Or do you get hit with a possible double whammy from both States?

        The state where you bought and redeemed the ticket is the state where you have the income, so they get the first shot at taxation. Most states have reciprocal tax agreements to avoid double taxation, so if your home state's tax rate is less than or equal to that of the state where you bought the ticket, you won't owe anything more. If your home state's tax rate is greater, you'll owe them the difference.

        I am not an expert. Free tax advice on the internet is worth what you paid for it.

          travelintrucker's avatar - morph
          Greenville, SC
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          November 4, 2015
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          Posted: January 13, 2016, 11:23 am - IP Logged

          You'd file taxes on sold investments. Really not much difference from that perspective. My thoughts on taking cash over the annuity are, you'll get a better return in the same time frame if you compound a modest 10% return each year.

          May the balls bounce in your favor!

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            Arizona
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            Posted: January 13, 2016, 1:03 pm - IP Logged

            You'd file taxes on sold investments. Really not much difference from that perspective. My thoughts on taking cash over the annuity are, you'll get a better return in the same time frame if you compound a modest 10% return each year.

            A "modest" 10% each year. Right. Good luck with that.

            I ran some numbers last night, and if you go for a no-risk low-return investment strategy (i.e. "I am more concerned with the return of my money than the return on my money"), you may well end up with more in the long run by taking the annuity.

            Of course, with the jackpot this large, it doesn't really matter how - or even if - you invest. With no investment returns at all, you could still spend 3-4 million a year (with annual increases to keep up with inflation) for the rest of a long life without running out of money.

            With a small jackpot the annuity has significant tax advantages. If you take the annuity on a starting MM jackpot, you aren't even in the top tax bracket.

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              Ga
              United States
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              December 20, 2011
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              Posted: January 15, 2016, 6:55 am - IP Logged

              Well it seems the biggest concerns for taking the annuity is  1, higher tax bracket and 2, government defaulting on the payments.
              1. it's free money plan around what you can save.
              2. if the government stops paying lottery winnings when we are the ones that fund it, there are much bigger problems.
              What the states get from the lottery is a drop in the bucket of the education budget but still free money for it.
              Nowhere is it written that you have to spend each years returns, have fun with the first year's payment, the rest take out what you budget for a salary invest the rest each year.  10 million year for 29 years can be turned into alot more than 300 million doing like that.

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                Posted: January 15, 2016, 9:54 am - IP Logged

                I read (somewhere over the past couple of days) that if you receive the 29-year annuity, that the winner could "will" that to his/her estate, and at the winner's death, the beneficiary (or beneficiaries) can elect to continue to reach an annual payment or get a payout.  Of course, if there were two or more, they would have to agree on one choice/decision.  That could be interesting -- or a big mess.

                Not a lawyer--don't know any...but I read it on the Internet -- so you know it has to be true. LOL

                  ressuccess's avatar - Lottery-043.jpg

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                  Posted: January 15, 2016, 4:45 pm - IP Logged

                  I think they need to take the lump sum because they desperately need the money.

                    sirbrad's avatar - Lottery-062.jpg
                    PA
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                    October 6, 2005
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                    Posted: January 15, 2016, 5:47 pm - IP Logged

                    I would take the annuity if it were that big of a jackpot because after the first year I would be set for life anyway, all the other checks would just be icing on the already big enough cake. So it would not matter. Although I highly doubt anything is going to happen to the annuity and I doubt the tax rate is going up to 90% again, that was like one time back in the 40's I think. Look how much they make from PB and how successful it has been for so long. It just keeps getting higher and more successful over time and now we got billion dollar jackpots. You also do not have to worry about where you are going to put a huge amount or risky investments falling through. I would decide though once I won. It is "guaranteed" and that means they are legally bound via contract to pay the annuity.  you also have less taxes as you are not in the top percent if the annuity is smaller. So you get more in the end.

                    From the Powerball site.

                    "CASH VS. ANNUITY - MY FINANCIAL EXPERT SAYS HE CAN EARN MORE THAN THE ANNUITY WITH THIS CASH.

                    Maybe. We have seen that even financial experts forget about taxes. From the example above, if the winner takes the cash, then the winner will have to pay state and federal taxes on the cash amount. The amount of income tax will vary, but it will likely be somewhere close to half the cash amount (counting federal and state taxes). With $50 million as a cash prize, a cash winner will have less than $30 million to invest. We don’t pay any income tax and so start out by investing the whole $50 million. You should note that the maximum federal tax rate is pretty low right now and may go higher in the future. Interest earnings are also near historic lows. There is not a completely right answer. The right answer for you will depend on your age and your financial discipline.

                    Sometimes financial experts also do not understand how the annuity prize is paid out. We do not hold the prize for 29 years and then pay it all out. The Powerball annuity prize is an annuity stream. The winner gets the first payment immediately and then an annual payment for the next 29 years. And this is guaranteed. It is possible to beat this income stream, but not without risk. Deciding how to take the prize can be a complicated decision, but it is an important one that deserves your attention. You have 60 days, after you claim your ticket, to make the decision. Get lots of advice and ask these kinds of questions.

                    "The word "guarantee" is certainly overused from time to time, but if it can have any meaning in the English language, then it can be used with the Powerball jackpot. You can imagine some instances where even a Powerball jackpot will not continue:
                    (1) A meteor strikes North America, wiping out all life.
                    (2) The U.S. government is overrun by [insert name of feared enemy here].
                    Short of these events, the Powerball annuity prize will be paid on schedule. What we actually use for our investments is not important; the Powerball prize -- which pays a graduated annuity, rising at 4% per year to keep up with inflation -- is a contract between each of the lottery members (the states) and you. As long as the U.S.A is in business, you will be paid. If the U.S.A. fails, then you will have other things to worry about."