Lotto-vm.com User 1:
Lump sum or annual payment?
It's a basic choice for all lottery winners, and financial advisers say picking the best strategy can be complex.
But as this week's record Powerball payout showed, having that huge check all at once is nearly irresistible.
Since December 2009, the Florida lottery has paid out 148 jackpots to Lotto, Powerball or Mega Money winners. All but five took the lump sum.
It's the same all over the country, said Don McNay, a Kentucky consultant who specializes in advising lottery winners and people who gain sudden wealth because of personal injury claims.
"Ninety-eight percent of Powerball and Mega Millions winners take the lump sum,'' McNay said Thursday. "But I advise people to take the money over time, if you are 84 or 30.''
Why?
"At least 70 percent of winners run through the money in five years or less,'' McNay said, "and it doesn't make any difference whether they win $1 million or $100 million.''
People who amass wealth by selling a business or inheriting a fortune are less likely to lose it quickly because they have time to plan, he said. But he tells lottery winners, "Don't take the $100 million, take the $5 million a year. If you run through that the first year, you have 19 more chances to figure it out.''
Zephyrhills resident Gloria MacKenzie, 84, won the $590 million Powerball jackpot this week, which she is splitting equally with her son Scott by prior agreement.
Neither they nor their financial adviser would comment on why they took the lump sum payout, which came to about $185 million each before federal income taxes. The Florida lottery already withheld 25 percent for taxes, but the top bracket is now 39 percent, so the MacKenzies will likely owe more when they file their returns.
The Powerball's "annuity option'' would have paid them the full $590 million, but parceled out over 29 years.
Whether mother and son ultimately come out ahead depends on how they spend it and what kind of investment returns they earn, advisers said.
The lottery's annuity option is based on low, conservative interest rates, but it is also applied to a higher base because the lottery doesn't pay those initial federal taxes. If stocks, bonds and interest rates rise, then the lump sum winners may do better. If the market tanks, people with the annuity will be smiling.
People often take the lump sum because "there are a lot of big things they want to buy up front,'' said Helen Huntley of Holifield Huntley in St. Petersburg. "They want a new house and cars rather than spreading it equally over a lifetime.''
The lump sum may also work better for an 84-year-old, because of her life expectancy, Huntley said. Annuity payments would still go into her estate, but that could cause complications by dribbling in over such a long time. Whatever is left from a lump sum, "would probably be cleaner,'' Huntley said.
The annuity option might make more sense with smaller jackpots, said Ginger Snyder of 360 Wealth Management Group of Raymond James. Annual payments might fall in a lower tax bracket.
In any case, Snyder said, lottery winners should consult an estate planner and tax attorney before deciding how to accept the money. Among other things, trusts and corporations might maximize ways to share bounty with children and friends, both while the winner is alive and after death.
"There are a number of tricky things you can do with partnerships and trusts if you have a lot of money,'' Snyder said.
Wealthy people can now give up to $14,000 a year to anyone without notifying the IRS. Larger gifts must be reported but without any tax burden until the giver hits a lifetime total amount of $5.25 million in reported gifts.
Above that, the giver pays federal gift taxes, which run 40 percent right now, the same as inheritance taxes. The receiver pays nothing.
Snyder also recommended that people like MacKenzie seek counseling because their windfall carries challenges.
"This has changed her life,'' Snyder said. "This is going to be very tough and very emotional.''
Lotto-vm.com User 2:
Anything that is between $1 to $599 can be picked up at any retailer that does the lottery. You DO NOT have to pay taxes on these winnings. I had a few idiots ignorant about the tax law get into shouting matches with me about me giving them their tickets back because they want to claim it on their taxes anyways when they don’t have to. Anything between $600 and $5,000, you would have to return to the SAME EXACT place you bought your ticket and they will scan the winning ticket so that the machine can print out a “pay to barer” receipt and they will fill out a “pay to barer” form for you which the retailer has to fill out for you. They will staple this together and have you go to any bank to pick the money up-here in Ohio, it’s at PNC Bank. For prizes over $5,000, you will go DIRECTLY TO the lottery commission-DO NOT GO BACK TO THE RETAILER YOU BOUGHT IT FROM. You will have to go straight to the lottery offices to claim these. There is a good reason for this. A couple years back, a gas station owner stolen a $1 million dollar ticket from a man, lied to him that the ticket wasn’t a winner, stole the ticket from him, cashed it, and fled right back to Nepal with all the money and because Nepal has no extradition treaty with the United States, they were not able to get the money back from the dude or arrest him. There were other cases of store owners stealing huge winning tickets from unsuspecting winners and this is why they made the cap of $599 or less at the stores to pay out-plus not too many stores have that kind of money on hand to give out to folks.
Even though the payout is smaller, I would take the lump sum. What they do with annuity payments is put the entire amount into an account and pay it out each year. Problem with this method is that the accounts that these lottery commissions use to pay out annuities collect interest on this money just sitting in there and they keep that interest from the money. Taxwise, you’ll pay a lot more too with annuities as well too because tax rates change each year and from the looks of things, they’re going up.
