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Ohio Woman Scores $15M Lottery Win, But A Huge Tax Bill Means She May Only Take Home $4.5M – Here’s Why
In a stroke of unbelievable fortune, Jeanne, a Sandusky, Ohio resident, won $15 million in the state’s 50th Anniversary scratch-off game this past June.
Describe when Jeanne told the Ohio Lottery Commission that she had “dropped to the floor” after realizing her win. At the store, the clerk and Jeanne had cried together, leaving bystanders wondering what on earth had just happened.
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While $15 million might seem like a life-altering sum, Jeanne’s final payout will be much less due to taxes, leaving her with around $4.5 million. It’s a classic example of a lottery winner facing a significant reduction in winnings after taxes – an issue many winners don’t see coming.
Jeanne had the option of receiving $600,000 annually over 25 years (which totals the advertised $15 million) or a lump sum of around $7.5 million. She chose the lump sum. According to Moneywise, Jeanne will be left with around $4.5 million after paying federal and state taxes, a far cry from the headline-making prize.
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So, why is there such a huge difference between the $15 million jackpot and her final earnings?
The IRS requires lottery agencies to withhold 24% of any prize over $5,000. For Jeanne, that meant $1.8 million was withheld for federal taxes from her $7.5 million lump sum. But the story doesn’t end there.
Since lottery winnings are taxed as ordinary income, Jeanne’s windfall pushes her into the highest federal income tax bracket of 37%. This means her total federal tax liability rises to approximately $2.73 million, Moneywise reported.
State taxes also take a bite out of Jeanne’s winnings. Ohio taxes lottery income at 3.5%, which means Jeanne will owe around $262,000 to the Buckeye State. Jeanne’s total tax burden is nearly $3 million, leaving her with just $4.5 million. It’s not bad for a $50 scratch-off, but far from the $15 million advertised.
Given these eye-watering deductions, one might wonder if Jeanne should have opted for the annuity. Would she have taken home more money in the long run?
By choosing the $600,000 annual payment for 25 years, Jeanne would receive the full $15 million over time. Her tax burden would be spread out and she’d pay yearly taxes based on her income.
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In 2024, that means she’d owe roughly $180,000 in federal taxes and $20,000 in state taxes on the first $600,000 installment, according to current tax brackets. However, tax rates could shift over the next two decades, potentially lightening her tax load if Ohio’s proposed income tax elimination passes.
Many financial experts advocate for the annuity option as it ensures a steady income stream. According to certified financial planner Michael Kitces, annuities can reduce the risk of quickly burning through a lump sum. Steady payments help prevent financial risks.
That said, the lump sum offers immediate financial freedom, likely why Jeanne chose it. Many winners use lump sums to pay off debts, buy homes or invest in growth opportunities.
But as tempting as immediate access to millions might be, experts warn that having a plan in place is essential. Without solid financial advice, it’s easy for winners to blow through their money faster than they think.
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This article Ohio Woman Scores $15M Lottery Win, But A Huge Tax Bill Means She May Only Take Home $4.5M – Here’s Why originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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This article Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions originally appeared on Benzinga.com
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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