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    whitters1's Avatar
    whitters1 Posts: 1, Reputation: 1
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    #1

    Jan 16, 2014, 10:25 AM
    Discount rate for lotteries i.e. Powerball
    If gross winnings = $10,000,000
    if winnings are = $ 9,700,000 after deducting taxes.
    If winner takes a lump sum 'up front' payment how much
    would the net winnings be discounted... percentage wise
    and number of years used in the discounting?
    smoothy's Avatar
    smoothy Posts: 25,495, Reputation: 2853
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    #2

    Jan 16, 2014, 10:34 AM
    You are aware tax rates vary by jurisdiction?
    odinn7's Avatar
    odinn7 Posts: 7,691, Reputation: 1547
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    #3

    Jan 16, 2014, 10:37 AM
    What?

    First, your taxes are WAY off....WAY WAY WAY off....No place in the US are they only going to deduct $300,000 from $10 million for taxes.

    The rest of it, you will have to probably ask the lottery commission.
    smoothy's Avatar
    smoothy Posts: 25,495, Reputation: 2853
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    #4

    Jan 16, 2014, 10:41 AM
    Yep... federal taxes alone are 50% on that PLUS any state and local taxes on top of that. I'm guessing this is someones homework question.
    ebaines's Avatar
    ebaines Posts: 12,130, Reputation: 1307
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    #5

    Jan 17, 2014, 07:15 AM
    The number of years of discounting and the discount rate depends on the payout plan for the specific lottery - in the case of PowerBall here in the US it's 20 years and 5% discount rate. This works out to a one-time lump sum equivalent payout of about 64% of the stated prize amount. From that they subtract 35% for federal tax plus whatever your local state tax rate is. For example: if the prize is $10M and if your state tax rate is 5% then they would subtract 40% for taxes, leaving you with a lump sum payment of about 60% x 64% x $10M= $3.84M.
    ScottGem's Avatar
    ScottGem Posts: 64,970, Reputation: 6056
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    #6

    Jan 17, 2014, 08:50 AM
    Is the discount rate set? It was my impression (and I could be wrong) that this could vary depending on current investment yields. So if annuity rates are lower, it would require more of a lump sum to get the total annualized payout. If investment yields are higher, then it would be less.

    Why worry about it now? Wait until you win.
    smoothy's Avatar
    smoothy Posts: 25,495, Reputation: 2853
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    #7

    Jan 17, 2014, 09:08 AM
    Also.. my understanding while the Anuity pays out more over its life... the payout ends at your death... meaning if something happened to you a month later... it ends and if you had family they would not receive it. But a lump sum once in your hands can be invested and stays with yiour estate to be passed on.

    Nobody expects anything to happen to them... but its something to consider.
    ScottGem's Avatar
    ScottGem Posts: 64,970, Reputation: 6056
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    #8

    Jan 17, 2014, 09:18 AM
    I would never take the annuity payout for two reasons. One because the annuity might end with my life (though not every lottery has that provision). But more importantly, because I can invest the money at a better return then the lottery commission can.

    Lets say, for example a $10M win is payable in 20 $500K installments. Now, I can live on a lot less than $500K. So I would invest part of the lump sum to provide a lifetime income of $100-$150K and then use the rest to invest for the future or for purchases/bills.

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