Author Topic: So Assuming I Win the $1.5 Bil Powerball Tonight  (Read 5098 times)

hodedofome

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So Assuming I Win the $1.5 Bil Powerball Tonight
« on: January 13, 2016, 09:30:43 AM »
Lemme see if I got the math worked out correctly:

$1.5 Billion Jackpot
$930 Million Cash Value

Assuming I take the cash value, I will be taxed 40% on the winnings which leaves me with only $558 million. However, I believe I can setup a private foundation and put as much as 50% of the earnings into it. Based on that, I could put $465 million into the foundation, leaving me with only $465 million to be taxed. Of the $465 million taxable, I'd be left with $279 million in taxable accounts and $465 million in the foundation. That'd be a total of $744 million I'd control at the end of the day.

Does everyone agree with these numbers or am I off here?

dandarc

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #1 on: January 13, 2016, 09:46:41 AM »
Roughly - you'd want to be sure your foundation is set up such that donations to it qualifies for the 50% charitable contribution deduction.

Then your itemized deductions are reduced by 3% of AGI as a high-income earner.  So you'd only be able to effectively deduct about 94% of the contribution.

Rough math above - figured with $930M income, the $310K or thereabouts threshold for being subject to itemized deduction phase out wasn't too significant.

KittyFooFoo

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #2 on: January 13, 2016, 09:50:17 AM »
I don't know anything about the private foundation, but here are some interesting facts:

$930M cash value
Effective tax 40% (for many with state and local tax, this would be as high as 50%)
Your prize is $558M after tax.

However, IF you win, it is actually unlikely that you are the sole winner.  Assuming 500M tickets purchased, the odds are:

0 winners 18%
1 winner 30.9%
2 winners 26.5%
3 winners 15.1%
4 winners 6.5%
5 winners 2.2%
...

where each of these is calculated (N choose w) * p^w * (1-p)^(N-w), N = num tickets purchased, w = num winners, p = probability to win jackpot

So, if you win, we know the 0 winners case didn't happen, but each other outcome is still possible.  So divide each probability by 0.82 to get the probability of that outcome, given that you win.

We find that, assuming you picked the correct numbers, your odds of being the sole winner is a surprisingly low (at least to me) 37%.  Still the most likely number of winners, but a dog to actually happen.

Your average payout, given that you win, is $349.6M.

Considering only the big jackpot, this means that each powerball ticket is a piece of paper worth about $1.20.  Factoring in the other prizes, it's worth about $1.40 (estimated).

If, like me, your marginal tax rate would be more like 50% (7% state and 3% local), the average value of a ticket drops to $1.18.

Good luck everyone :)
« Last Edit: January 13, 2016, 10:00:02 AM by KittyFooFoo »

dandarc

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #3 on: January 13, 2016, 09:57:40 AM »
Actually, a donor-advised fund might be the ticket for the tax question.  https://www.vanguardcharitable.org/resource_center

hodedofome

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #4 on: January 13, 2016, 10:33:46 AM »
Actually, a donor-advised fund might be the ticket for the tax question.  https://www.vanguardcharitable.org/resource_center

Considered that but I'd like to personally manage the investments for the foundation, whereas with a donor advised fund I don't believe I can do that. I would however have both a private foundation and a donor advised fund to put the 5% giving minimum from the foundation (if I couldn't find enough suitable charities to give $20+ million a year to in the beginning). So I'd park the giving from the foundation in the donor advised fund for a little while until I could find places to give it to.

I'm in TX so there's no state income tax here.

I believe it takes a while to get a private foundation up and running so I'd probably have to set up some sort of charitable trust to receive the money from the lottery before it could be put into the foundation. I think I have 180 days to claim the ticket and another 60-90 days to tell them where to put the money after that.

EDIT: I wonder if I can put the money in a donor advised fund initially (just cause it's quick and easy), then put it in the private foundation once that's setup?
« Last Edit: January 13, 2016, 10:42:05 AM by hodedofome »

trailrated

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #5 on: January 13, 2016, 10:36:21 AM »
Yeah you are probably going to have to work another 10-15 years though, I don't think that is enough to retire on. ;)

hodedofome

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #6 on: January 13, 2016, 10:45:13 AM »
Yeah you are probably going to have to work another 10-15 years though, I don't think that is enough to retire on. ;)

No doubt, $280 million just doesn't buy what it used to.

Unfortunately I'd probably have to work at least another 3-6 months, as I'm 'the guy' at my office and it would take me a little while to train someone else how to do my job. I couldn't just up and leave as that would really put the owner of the company in a bind, and he may be tempted to just sell the business, which would probably cost my co-workers their jobs. I don't think I could live with that.

AdrianC

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #7 on: January 13, 2016, 10:47:31 AM »
Yeah you are probably going to have to work another 10-15 years though, I don't think that is enough to retire on. ;)

No, just one more year and I'd be set. I'm still not sure about the 4% rule.

hodedofome

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #8 on: January 13, 2016, 11:35:31 AM »
Aw crummy, I just saw that private foundations owe 1-2% of their investment income each year for taxes. Has this always been the case? I don't remember reading about that before. I just knew they had to give 5% of their assets away each year.

Perhaps the donor advised fund is the better option after all...

dandarc

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #9 on: January 13, 2016, 11:37:20 AM »
Aw crummy, I just saw that private foundations owe 1-2% of their investment income each year for taxes. Has this always been the case? I don't remember reading about that before. I just knew they had to give 5% of their assets away each year.

Perhaps the donor advised fund is the better option after all...
Yeah.  And contributions to a private funding foundation are usually only deductible up to 30% of AGI.

Heckler

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #10 on: January 13, 2016, 11:58:41 AM »
Hang on here...  A bunch who claim to be mustachians dont know the Lottery is tax on the stupid?

Good luck all!  I still have my $5.
« Last Edit: January 13, 2016, 01:55:29 PM by Heckler »

hodedofome

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #11 on: January 13, 2016, 12:51:06 PM »

Hang in here...  A bunch who claim to be mustachians dont know the Lottery is tax on the stupid?

Good luck all!  I still have my $5.

You got ripped off. It only cost me $2 to make $750 mil. Twas a good trade.


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Heckler

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #12 on: January 13, 2016, 01:56:24 PM »
I would have bought two and a chocolate bar if it werent for MMM teachings.

Heckler

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #13 on: January 13, 2016, 01:57:53 PM »
Nope, thats not true.  Ive never biught a lottery ticket.  Tax on the stupid who didn't take statistics or probability in school. 

dandarc

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #14 on: January 13, 2016, 01:59:36 PM »
Nope, thats not true.  Ive never biught a lottery ticket.  Tax on the stupid who didn't take statistics or probability in school.
So five chocolate bars then?

Heckler

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #15 on: January 13, 2016, 02:19:40 PM »
Lol. Nope. 

fwiw, Ive kicked a twice weekly Mcdonalds lunch habit.  Only went there twice in 2015, one of those times for icecream (far chesper than Dairy Queen) for the nieces.

soccerluvof4

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #16 on: January 13, 2016, 03:01:48 PM »
probably a math problem you wont have to worry about!

JLee

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #17 on: January 13, 2016, 03:24:14 PM »
Nope, thats not true.  Ive never biught a lottery ticket.  Tax on the stupid who didn't take statistics or probability in school.

You should've taken spelling while you were taking statistics and probability. :D

Heckler

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #18 on: January 13, 2016, 04:50:48 PM »
Spelling ir Iphone typing?

FerrumB5

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #19 on: January 13, 2016, 10:21:03 PM »
It's random numbers

Heckler

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #20 on: January 14, 2016, 10:27:43 PM »
so?  did you win?







sorry for all the e-sarc, but I really don't think lotteries belong in an investing forum.

hodedofome

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #21 on: January 15, 2016, 03:07:54 PM »
Topic was not about the lottery as much as the legalities of taxes and giving.

And obviously I didn't win, otherwise it'd be my lawyer writing this response.


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shotgunwilly

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #22 on: January 15, 2016, 03:52:21 PM »
Nope, thats not true.  Ive never biught a lottery ticket.  Tax on the stupid who didn't take statistics or probability in school.

Actually, buying a $2 lottery ticket, which has odds of something near 1 in 292,000,000 to win $1.5 billion dollars is a +EV move. (Positive Expected Value)

To make the situation simpler for you, it's like betting $1 on a coin flip (1 out of 2 odds), and if you win, you win $2.57.  And if you lose, you lost $1.00. 

Note - Lots of other variables come into play in the calculation of EV on a lottery ticket, such as other non-jackpot prizes, subtracting taxes, and the amount of tickets sold (which means you could split the jackpot with other people.)  Thus, the math is a little more difficult than this. ;)

(edit because i quoted the wrong line.)

« Last Edit: January 15, 2016, 03:55:43 PM by shotgunwilly »

nobodyspecial

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Re: So Assuming I Win the $1.5 Bil Powerball Tonight
« Reply #23 on: January 16, 2016, 09:20:19 AM »
It's random numbers
That's what I thought, so I asked my computer for some random numbers and those didn't come up.
The lottery is obviously rigged