Who wants to be a billionaire??

[Catman100]

$1.35 billion Mega Millions drawing on Friday.

So correct me if I’m wrong.

If you take it in 30 yearly payments, you get taxed on that every year.
If you take the lump sum, not only do you get taxed, but you also are penalized a significant amount for taking the cash option.

Seems like you get more with the yearly plan.

I think I’d take the yearly, if anything to guarantee I wouldn’t blow it in 5 years. Lol

What the heck would you do if you got the news you won?

 

[gamecockcat]

The two options are exactly equivalent. The 'penalty' is the discount factor, i.e., the time value of money. $40 million in 30 years is not the same, obviously, as $40 million today, hence the discount/penalty. This prize would be discounted a lot more than one won 2+ years ago as the discount factor is generally pegged to inflation. The higher the discount factor, the larger the discount on the lump sum (penalty).

Taking the annual payment option is not without its risks. Tax rates may go sky high in the future and some of those annual payments could get taxed at 70% vs. 37% today (federal). Who is guaranteeing the 30 years of payments? If the guarantor defaults, you're SOL.

To me, 'a bird in the hand...'. I'll take the burden of investing, let's say, $400 million dollars in a lump sum knowing that all my taxes are paid in full and I don't have to worry about whether my next payment is actually going to be made.

 

[Ryan Lemonds Hair]

So what you are saying is either way you can't say your a billionaire?

 

[JonathanW_rivals]

I saw a story yesterday that of a 1.1B lottery, if you took the lump sum you would get about 600M. Any of us would be set for life (& our kids, and our grandkids) in EITHER distribution method.
But I suppose the yearly protects you from losing it all quickly with stupid decisions or from foul play.


You do get more with the yearly plan. However, you must also consider opportunity lost with the yearly plan, because you could invest the full amount and get interest or investment gains. Not to mention inflation affects the net value of the future amount. I believe both of those are considered in calculating the lump sum amount.

 

[8titles_rivals270261]

The two options are exactly equivalent. The 'penalty' is the discount factor, i.e., the time value of money. $40 million in 30 years is not the same, obviously, as $40 million today, hence the discount/penalty. This prize would be discounted a lot more than one won 2+ years ago as the discount factor is generally pegged to inflation. The higher the discount factor, the larger the discount on the lump sum (penalty).

Taking the annual payment option is not without its risks. Tax rates may go sky high in the future and some of those annual payments could get taxed at 70% vs. 37% today (federal). Who is guaranteeing the 30 years of payments? If the guarantor defaults, you're SOL.

To me, 'a bird in the hand...'. I'll take the burden of investing, let's say, $400 million dollars in a lump sum knowing that all my taxes are paid in full and I don't have to worry about whether my next payment is actually going to be made.

Dead on. One side note, the lump sum typically is the equivalent of the seed money needed to stretch out to 30 payments with interest and get to the total value of the prize. Regardless, based on what I have read the risks are exactly as you laid out. Do you want to risk most of our money with a bank or financial institution somewhere who is managing it and could go under at some point, or have it in hand an manage your own investments.

I wouldn't fit in a Ferrari and my kids are about out of the house so no need for a monster of a house. The lump sum would be just fine for me. Houseboat, new fast boat and a couple of months down south this time of year and I am set.

 

[_ukcat]

I heard that if you live in NY and had won last night and took lump sum after taxes your 1.2b would be 296m. I take that but WOW!

 

[berniecarbo]

$1.35 billion Mega Millions drawing on Friday.

So correct me if I’m wrong.

If you take it in 30 yearly payments, you get taxed on that every year.
If you take the lump sum, not only do you get taxed, but you also are penalized a significant amount for taking the cash option.

Seems like you get more with the yearly plan.

I think I’d take the yearly, if anything to guarantee I wouldn’t blow it in 5 years. Lol

What the heck would you do if you got the news you won?

I'd be shocked and say there must be a mistake because I didn't buy a ticket. It was only about 30 grand, but I got a check in the mail one day for a guy with the exact same name as me. I did a little checking and found out it should have gone to a guy in a nearby nursing home, so I took it to him.

 

[Tskware]

I heard that if you live in NY and had won last night and took lump sum after taxes your 1.2b would be 296m. I take that but WOW!

My take is that 1.35 B is $45M in 30 equal payment.

You get the first one immediately, then another $45M in one year and another $45M in two years. So if you live 24 months, you will already have been paid $135M (10% of the total payout) and have 27 more payments coming. In short, you have generational wealth in 2 years already, so the risk of default over time is lessened. [NOTE: I am 99% sure the payments continue to your heirs and estate, so you don't lose it on death]

Before I made a final decision (you have six months to claim, I think) I would hire the best accounting firm I could find and the smartest set of NYC lawyers I could find and figure out how to shelter the money in charitable trusts, family trusts, etc. and then most likely take it over time. That would give you more time to figure out how to invest it rather than having $500M in one bucket right away.

I would end up giving most of it away anyway, after 20 or 30 million, I doubt seriously I could spend any more so the very first payment would set me up beyond my wildest dreams.

 

[lex cath]

Here is my solution, hire a great tax attorney firm

 

[CaptainBoogerBuns]

Paying the taxes would rob me of joy if I won the 1,1B. Not worth it.