Powerball Fun Facts

[Tugg Speedman]

It was 50 balls until October.  Now 69.  That is why it is harder to win.  And, yesterday was the first winner since the new odds were started (19 weeks without a winner until yesterday).

Watch, in three months or so we’ll have another billion dollar jackpot again.  Not our last time to fantasize about winning this.

http://www.powerball.com/powerball/pb_howtoplay.asp

Beginning in October, 2015, Powerball® became an even larger combined large jackpot game and cash game. Every Wednesday and Saturday night at 10:59 p.m. Eastern Time, we draw five white balls out of a drum with 69 balls and one red ball out of a drum with 26 red balls. This change means bigger jackpots. It also means that your odds of winning some prize are improved.

Interestingly, read this about the payouts.  Why ever take the lump sum?

The jackpot - won by matching all five white balls in any order and the red Powerball - is either an annuitized prize paid out over 29 years (30 payments counting the first immediate payment) or a cash lump sum payment. If you choose the cash, then you get the cash, pay the tax, and can invest what is left over. If you choose the annuity, then we can invest the cash amount pre-tax, less an immediate first payment (more to invest means more earnings). With the annuity, you get an annual payment that is increased by 5% each year to keep up with the cost of living[/u].[/b]

Finally, here are the payouts.  If a Vegas casino offered these poor kind of payouts, Casino owners would go to prison.

Maybe that is why it is called a "lottery"

[Stronghold]

Question about the annuity.  If someone young won the powerball, not a bad idea to take the annuity and end up with a ton more money than the cash lump sum.  What if a 65 year old wins it and his/her life expectancy is much less than the 29 years?  Is the annuity transferrable to a spouse or children?  If not, then the lump sum makes a lot more sense.

[GGGG]

Question about the annuity.  If someone young won the powerball, not a bad idea to take the annuity and end up with a ton more money than the cash lump sum.  What if a 65 year old wins it and his/her life expectancy is much less than the 29 years?  Is the annuity transferrable to a spouse or children?  If not, then the lump sum makes a lot more sense.

Yes.  The annuity can be part of your estate. 

And I still think I would take the lump sum.  I would feel more at ease getting all the taxes out of the way, and paying off debt, figuring out where to live, buy the house, etc. and then just have to worry about managing my fortune. 

[Tugg Speedman]

Yes.  The annuity can be part of your estate. 

And I still think I would take the lump sum.  I would feel more at ease getting all the taxes out of the way, and paying off debt, figuring out where to live, buy the house, etc. and then just have to worry about managing my fortune.

Yes the annuity is transferable.  You can sell it.  Their are money management firms that specialize in buying the annuities.  They give a MUCH higher payout than the lump sum.

[Benny B]

Yes the annuity is transferable.  You can sell it.  Their are money management firms that specialize in buying the annuities.  They give a MUCH higher payout than the lump sum.

This is why you absolutely have to retain a financial adviser, tax attorney, and a few body guards before walking into the lottery office.  Only an idiot would show up today to claim his/her prize.

[Tugg Speedman]

I also read that California does not tax lottery winnings.  (remember still have to pay Federal taxes)

So take the annuity, pay state taxes in year 1 where you live, move to Southern CA over the next 364 days and live their without paying their crushing state taxes.

Why doesn't every lottery winner move the CA?  Or do they?

If I win the lottery, I'm buying the house next door to Chicos!!

[Spotcheck Billy]

I am probably wrong but I think most (all?) states would consider the annuity earned at the time you 1st won = taxable income in that state.

[Tugg Speedman]

I am probably wrong but I think most (all?) states would consider the annuity earned at the time you 1st won = taxable income in that state.

If true, if you move still move to CA and escape state taxes.  they cannot tax you again on the same money.

(Income can only be earned once and in one place. So when professional athletes are taxed for competing in CA, they can deduct that from the home state taxable income.)

[Benny B]

Why doesn't every lottery winner move the CA?  Or do they?

I heard the same question asked of an expert on MSNBC or something and the answer was "it depends on the laws of the state where you purchased the ticket and/or reside."

From this, I would infer that there may be some combinations of a) state you live in, b) state you purchased ticket in, and c) state you move to that would result in no state income taxes, but if it ever happens in a high-profile jackpot like this, you better believe that states are going to close that loophole as soon as they can, if they aren't thinking about it already.

[warriorchick]

I also read that California does not tax lottery winnings.  (remember still have to pay Federal taxes)

So take the annuity, pay state taxes in year 1 where you live, move to Southern CA over the next 364 days and live their without paying their crushing state taxes.

Why doesn't every lottery winner move the CA?  Or do they?

If I win the lottery, I'm buying the house next door to Chicos!!

If I had won, all I would have had to do is spend six months plus one day of 2016 in Las Vegas.  No state income tax.  In a nicer place, natch.  I'd buy Shanandoah from Wayne Newton, maybe.

[Spotcheck Billy]

All 3 winners will not have to pay state income tax.

[Tugg Speedman]

Yes the annuity is transferable.  You can sell it.  Their are money management firms that specialize in buying the annuities.  They give a MUCH higher payout than the lump sum.

Talked to one of the money management firms that buys lottery annuities.  With the caveat that $1.5 billion is a big number for them, they said that because the annuities increase by 5%/year (explained in the first post), and they can borrow at 3.5% to 4%.  They can offer more than the annuity.

Example
Annuity is $1.5 billion, $900 million lump sum.  If you take the annuity, the money management firm will borrow $1.7 billion to pay the winner their lump sum.  They borrow at 3.5% to 4%.  The annuity increases by 5%/year so the money management firm still makes money on the spread (or "carry").  Nearly doubles the lump sum from the Lottery.

Additionally I think the $1.7 billion they threw out it is still low.  I think they could go much higher if you push them.

Point is taking the lump sum is irrational.