3MM Casino Jackpot

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jimmy
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3MM Casino Jackpot

Post by jimmy »

I heard of somebody who recenlty won a casino jackpot on the slots and was offered 117k for the next 26 years or 2MM today. I was wondering what the tax would be if they took the 2mm today. The winner was in his mid 40's, lives in California and lives off of 30k/yr disability. I assume the federal tax would be 39.6% and the California state tax would be around 10%. Would the 3.8% medicare tax apply to this or is there any other gambling tax (state or federal). It looks like the winner would be left with 1MM or less.

What would the tax be on the 2MM?

What would you do.. take the 2MM today or the annuity payment of 117k/yr for 26 years?

Have a good long weekend everybody...
letsgobobby
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Re: 3MM Casino Jackpot

Post by letsgobobby »

how sure are you the payer would still be there 20 years on? Always have to account for that non-zero risk in the equation.

In the example you gave, I'd strongly recommend the annuity. That's based purely on unfair judgments about a mid 40s person living on $30k/yr in disability. That is, he'd be less likely to be bankrupt 20 years from now with the annuity, than with the lump sum. Taxes would be the least of my concerns but they would be lower with the annuity.

If I won the lottery I'd take the lump sum. I suspect most Bogleheads would, as well.
technovelist
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Re: 3MM Casino Jackpot

Post by technovelist »

letsgobobby wrote:how sure are you the payer would still be there 20 years on? Always have to account for that non-zero risk in the equation.

In the example you gave, I'd strongly recommend the annuity. That's based purely on unfair judgments about a mid 40s person living on $30k/yr in disability. That is, he'd be less likely to be bankrupt 20 years from now with the annuity, than with the lump sum. Taxes would be the least of my concerns but they would be lower with the annuity.

If I won the lottery I'd take the lump sum. I suspect most Bogleheads would, as well.
I would.
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InvestorNewb
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Re: 3MM Casino Jackpot

Post by InvestorNewb »

I would also take the lump sum.
On a side note: I know someone who won $30,000 at the casino. He spent several 100 thousand dollars to win it. :oops:
My Portfolio: VTI [US], VXUS [Int'l], VNQ [REIT], VCN [Canada] (largest to smallest)
FinanceGeek
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Re: 3MM Casino Jackpot

Post by FinanceGeek »

Quick Excel run of PV() says that the stream of payments is ~1/3 less than the lump sum, so I'd take the lump sum. And...try to change my residence to a lower tax jurisdiction before accepting the money, too bad that probably isn't legal tho. :oops:

This approach avoids counterparty risk in place of sudden wealth risk (which could be higher).

Either way, its not a bad problem to have.
lululu
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Re: 3MM Casino Jackpot

Post by lululu »

Lump sum.

I think with lotteries that blather on about $X million jackpots, it's actually knocked down if you take a lump sum and then knocked down further by taxes. I have the impression the tax guys are standing by and the check you get already has estimated taxes taken out of it.

They you have to run into the mountains and hide so you won't be kidnapped for ransom, but that's another story.
niceguy7376
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Re: 3MM Casino Jackpot

Post by niceguy7376 »

I am disappointed that I am reading about a person that won 2MM while the title talked about 3MM. Where did the one MM go? :D
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WolfpackFan
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Re: 3MM Casino Jackpot

Post by WolfpackFan »

I am disappointed that I am reading about a person that won 2MM while the title talked about 3MM. Where did the one MM go?
multiply 117k by 26
freddie
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Re: 3MM Casino Jackpot

Post by freddie »

FinanceGeek wrote:Quick Excel run of PV() says that the stream of payments is ~1/3 less than the lump sum, so I'd take the lump sum. And...try to change my residence to a lower tax jurisdiction before accepting the money, too bad that probably isn't legal tho. :oops:

This approach avoids counterparty risk in place of sudden wealth risk (which could be higher).

Either way, its not a bad problem to have.
PV() doesn't factor in taxes. You are paying 50% or so on 2 million (california is over 13% on income over 500k for individuals 75% of your income is the top brackets) versus 30% or so (your in the 28% bracket but a huge chunk of your money is being taxed a lower rates) if you only take 117k.

With the big lotterys (i.e. the 20 million+) I would pay the extra taxes and move on. With a small one like this, I might be tempted by the annuity and try and save on taxes.
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EyeYield
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Re: 3MM Casino Jackpot

Post by EyeYield »

I'd take the lump sum, but I don't spend my spare time in a casino.
A gambler with a lump sum sounds dangerous.
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LadyGeek
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Re: 3MM Casino Jackpot

Post by LadyGeek »

This thread has run its course and is locked (not personal nor actionable). See: A reminder that non-investing general comment threads are OT
- It must be personal. In other words, you must be asking about your own situation. You can also ask on behalf of someone specific, such as a family member.

- It must be actionable. You must be able to do something specific with the replies that will make a difference in your situation.
BTW, this thread is now in the Personal Finance (Not Investing) (hypothetical tax situation).
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