It's About The Lottery. Oregon Lotto To Be Exact....?

Let's say the jackpot is advertised at 80 million bucks.

If you took the cash option, you would get half of that and THEN pay taxes, so you'd CLEAR 20 million easily(26.4 to be exact)

You see, the jackpot of 80 million is 'projected' amount if invested in Treasury bonds over 26 years. The ACTUAL jackpot is 40 million.

If you take the cash up front, you pay taxes on the 40 and get over 20 million clear(26.4 to be exact)

Of course, I like to round the numbers off to make it easy to figure out, but to be more accurate using your 33% tax, you'd clear 2/3rds of 40 million, which is 26.4 million.

If you took the annual payments, you'd CLEAR after taxes $27,300 per year for every million in the jackpot.

Here's some data from the powerball website.

Unlike the mega millions which pays over 26 years, the powerball pays over 29 years, but similar taxes.

IS THE CASH AMOUNT THE JACKPOT AMOUNT AFTER TAXES?

No. When we advertise a prize of $100 million paid over 29 years (30 payments), we actually have less than $50 million in cash. When someone wins the jackpot and wants cash, we give them all of the cash in the jackpot prize pool. If the winner wants the annuity, we invest the $50 million in cash to fund the annuity payments. The winner gets the cash plus the interest earned. When you see an estimated jackpot annuity prize, we are estimating both sales and what the market's prices on certain securities will be. The annuity jackpot amount and the cash jackpot amount that we announce are always estimates until sales are final and, for the annuity jackpot, until we take bids on the purchase of securities.

Federal and State Income tax apply to whatever income you actually receive in a given tax year, whether it is wages or lottery prizes. If you take the cash amount (say $50 million), then you pay income tax on $50 million). If you take the annuity (say $100 million), then you pay income tax on the money you actually receive each year. Just like your wages, a withholding amount is required to be taken out immediately. The lottery will send you a W2-G form and you figure your actual tax at tax time.

CASH VS. ANNUITY - MY FINANCIAL EXPERT SAYS HE CAN EARN MORE THAN THE ANNUITY WITH THIS CASH.

Maybe. We have seen that even financial experts forget about taxes. From the example above, if the winner takes the cash, then the winner will have to pay state and federal taxes on the cash amount. The amount of income tax will vary, but it will likely be somewhere close to half the cash amount. With $50 million as a cash prize, a cash winner will have less than $30 million to invest. We don’t pay any income tax and so start out by investing the whole $50 million. You should note that current tax rates are pretty low right now and may go higher in the future. Federal rates for 2006 are at 35% (and Powerball winners end up in that maximum tax bracket).

Sometimes financial experts also do not understand how the annuity prize is paid out. We do not hold the prize for 29 years and then pay it all out. The Powerball annuity prize is an annuity stream. The winner gets the first payment immediately and then an annual payment for the next 29 years. And this is guaranteed. It is possible to beat this income stream, but not without risk. Deciding how to take the prize can be a complicated decision, but it is an important one that deserves your attention. You have 60 days, after you claim your ticket, to make the decision. Get lots of advice and ask these kinds of questions.