Ah Lotto fever has certainly hit California. The MegaLotto (which is a multi-state lotto of which California is part of) is at 250 million (draw tonight, Tuesday) and the Super Lotto (the original, California only) is up around 86 million and that draw is Wednesday night. The estimated pot for just 5 out of 5 numbers minus the mega number for the Mega Lotto is around 1.2 million. That means you didn't win the big one, but you got 5 out of 6 #'s. I'm not greedy. I could go for 1.2 million.
But what if I won? How does all that lottery stuff work? Cash value, 26 annual payments, etc? Well, basically, if you choose 26 annual payments of your 26,000,000 (let's use that as an easy example) then the State of California graciously sets you up an annuity guaranteeing an interest rate of ~ 6.68 %. All lotteries are annuities. The total jackpot you see advertised is bogus. That money is not available. In a typical state lottery, the cash value is roughly half the face value. Modern lotteries, you see, involve a bit of financial sleight of hand. You've "won" $X million only in the sense that you'll receive that much if you're willing to wait 20 (or 26 in some states) years to collect it. What you've actually won is the cash value plus the interest that accumulates. So what should you take, the cash value or the annual payments? Well, can you and your trusted financial adviser make better than 6.68% on that money if you took it all at once? Then you'd be better ahead taking the cash value.
Regardless, the IRS will take its share as well. You will be taxed based on the tax bracket you're in. Well, you've just won $26,000,000 so regardless of whether you collect now or over 26 years, you'll probably still be in the highest bracket (42%) unless you're a tax magician.
So this blog started out as going to be what I would do with the money, but perhaps I'll dwell on that tomorrow. I got down a rat hole counting my cash.........and how California and the feds were going to screw me out of a bunch of it.
No comments:
Post a Comment