Are you one of the hopefuls who is holding on to a potential $1.6 billion payout Mega Millions ticket? Here are a few things you might not be thinking about!I interviewed college students for our summer internship last week and asked them all what they would do if they had the winning lottery ticket. Fascinating answers. You can learn an awful lot about a person in how they would spend their winnings.
Should you bank on it?
Buying lottery tickets instead of saving for retirement is a bad practice. Odds are against you winning, but it can provide a few days fun daydreaming of a win while battling the Minneapolis end of season roadwork in your commute to work. It is proven that instant wealth usually ruins your life. You often end up with huge entourages of newly found family members and friends who need you to support their lifestyles as well as your own. Money cannot give you your health back. Money cannot make you happy on a sustained basis.
Lottery winnings and taxes
But if you are going to buy a ticket – here a few tips you should know:
$1.6 billion is not the dollar amount that goes into your bank account. You have to slice it in half if you take the cash option. So you are down to $800 million. You then need to slice it in half again for federal and state taxes. So you really end up with a number closer to $400 million.
Well say I am married, and I want to be really generous to my family. I want to give $10 million to both of my parents and each one of my three siblings. Current federal estate tax laws allow you to pass $22.36 million as a married couple gift and estate tax free. But anything over that will incur a federal estate gift and estate tax bite of 40%. So if I am giving $50 million to my family (2 parents and 3 siblings) I will need to pay an additional $11 million roughly in estate taxes just to the Federal government. A great freebie is the ability to gift $15,000 annually to any person (or $30,000 as a married couple) gift and estate tax free.
My personal mantra is it is miserable to be rich alone and I would always share it with my family. My siblings buy into a pool for our ticket instead of me buying my ticket alone. That way they get their own share instead of my having to pay gift tax by giving my winnings to them. Keep in mind this is a highly inefficient way to build personal wealth and should only be seen as pure entertainment. For me it creates some fun family conversations about what we really care about in life.