I guess lotteries really are a tax on people bad at math

Without reading the article...bought a lottery ticket?
 
I assume you're talking about taking it in a lump sum with the associated tax hit?

Follow-up stories on these winners are usually pretty sad.

ALso sad: a journalist who doesn't know the difference between "horde" and "hoard".
 
Having read the article...choosing the annuity probably would have been better, depending on taxes. $5.7M/$365K is only about 15 or 16 years, which is a pretty short life expectancy for a reasonably healthy-looking 47YO female.
 
SecondCor521 said:
Having read the article...choosing the annuity probably would have been better, depending on taxes. $5.7M/$365K is only about 15 or 16 years, which is a pretty short life expectancy for a reasonably healthy-looking 47YO female.
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Yea, my take, as well. But, she'll get by.
 
Looking at the NC lottery website that game would have paid $1,000/day for life. According to immediateannuities.com the payout rate on a SPIA for a 47 yo female in NC is 4.5312%, making the annuity value $15.859m.

But, who knows about the subject's health.... I probably would take the lump sum too rather than risk that something happens and I die and my family ends up with a fraction of what could have been.
 
SecondCor521 said:
Having read the article...choosing the annuity probably would have been better, depending on taxes. $5.7M/$365K is only about 15 or 16 years, which is a pretty short life expectancy for a reasonably healthy-looking 47YO female.
Click to expand...

+1

If she had taken the annuity, she could have used some of that to buy a hefty life insurance policy with her children as beneficiaries. The lump sum could go fast if she starts buying houses & education funds for her children and grandchildren. Maybe she should use about half of it for an annuity that would pay her about 100K a year.
 
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The issue for me would be what level of confidence do you have in the lottery entity staying solvent.
 
I have a friend (really an acquaintance) that won $1.8 million in the lottery. He was smart enough to go to a tax guy, and figured he would come out way ahead taking the annuity over 30 years, instead of paying taxes on the lump sum.

As I understand it, his annuity is guaranteed, even to heirs, for the payout period. BUT for the OP's subject, I suspect it ends on her death ($1,000/day for LIFE), so it is a more subjective calculation.
 
The "after tax" amount is after the required withholding, it's not the total tax due. Tax on $5.7 million would likely be$280k State of NC and nearly $2 million Fed taxes.
 
^^^ I get similiar amounts... so you would walk away with about 60% of the $5.7m lump sum and could then invest the $3.42m remainder.

OTOH, even if you take the $365k a year you would pay ~1/3 in tax each year vs 40% for the lump sum, netting $243k.

I still think I would take the lump sum.
 
Maybe it takes a good chunk to get that ministry off the ground. Taking the lump sum she can do it right away, rather than do it with the excess of the $365K/yr (less taxes), which could take a few years.
 
With the lump sum, she can provide for her family after her death. Not so with the 1k/day. It would stop the day she died. On the other hand, If she "spent" only the 243k of the lifetime benefit and bought an annuity of insurance or invested or.... with the remaining 100k each year for the next "x" years, she might do the same. So many ways to spin this.
 
I would always take the lump sum. I would never bet on either longevity or the continued ability of the state to pay. Once I get the money in my hand I can do things to make it go farther through hopefully wise investing, plus if I die it goes to my heirs.

Also, the idea that she would be less able to fritter it away with the annuity, ever hear of mortgages and leverage? She'd still be able to buy the houses and such she was talking about.
 
She obviously needs a FA and no doubt many have offered their services!
 
CRLLS said:
With the lump sum, she can provide for her family after her death. Not so with the 1k/day. It would stop the day she died. On the other hand, If she "spent" only the 243k of the lifetime benefit and bought an annuity of insurance or invested or.... with the remaining 100k each year for the next "x" years, she might do the same. So many ways to spin this.
Click to expand...

Quick perusal of the NC Lottery site shows this is false. The annuity is guaranteed for a minimum of 20 years. So 20x$365K = $7.3M (ignoring both time value of money and our extremely progressive tax system). And if she lives beyond 67 it is all gravy. Even beats SS for longevity insurance.
 
Or looking at it from the other direction, 365K/5.7M = 6.4% which in today's fixed interest rate world is not a bad rate.
I would take the lump sum though most likely in spite of the 6.4%.
SecondCor521 said:
Having read the article...choosing the annuity probably would have been better, depending on taxes. $5.7M/$365K is only about 15 or 16 years, which is a pretty short life expectancy for a reasonably healthy-looking 47YO female.
Click to expand...
 
Maybe the OP could enlighten us on the so-called mistake. It doesn't seem clear to me, and we have a split among some sharp people here. IMO a lot depends on how the money will be used. Personally, I can't think of any huge plan so if it made better sense to take the daily or yearly money, whatever it is, I'd do it. But I can understand why some might have plans for the money up front.
 
It's tough to greatly reduce the tax on $5 mil all in one year, but $365k per year is a different story, deductions can eat into that and reduce the effective tax rate.
 
What is more important to the winner in the story is to know how to hang on to that money.

We have read plenty of stories of lottery winners getting swindled out of it, or wasting it all in a matter of a few years. It was not taxes that drove them to being broke.
 
mh said:
The issue for me would be what level of confidence do you have in the lottery entity staying solvent.
Click to expand...
that was my thought. the immediate cash value is obviously less but the potential for growth is excellent. a bird in the hand....
 
The mistake I saw was "starting a ministry". On second thought, maybe a good idea since churches are tax exempt.
 
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