The Burden of Winning the Lottery
By the time you are reading this I will have won the 1.35 billion Mega Millions jackpot that will be drawn
on unlucky (for everyone else) Friday the 13th! You probably will not be surprised to learn that I don’t
play the lottery often. As a financial advisor I am not compelled by the 1 in 302,575,350 odds to win the
jackpot. However, for the chance of winning a billion dollars I will rustle up two dollars for one
ticket. There is almost supernatural experience that occurs when you buy a lottery ticket. You become
almost washed away with this sense that winning is a near certainty for you, those odds only apply to
others, your chance of winning must be 1 to 1! You find yourself down a 5 hour rabbit hole on Zillow
looking at 25 million dollar homes in the hill country convincing yourself that the kitchen in some of
these mansions will never do! All of this to find that your ticket didn’t share a single number that was
drawn. The 48 hour roller coaster of emotions was exhausting – you’ll probably need to take a morning
off to recover from the near miss you just had.
Inevitably, when the jackpot gets so big that it draws interest from non-gamblers and becomes a normal
topic of conversation in the workplace or social gatherings someone will say “Well you know the cash
value is only 700 million…and after taxes you’re only looking at 400 million.” When that comment is
made it deflates the excitement a bit and usually derails the conversation to another topic. The fantasy
got its first taste of reality.
A similar instance will likely happen in your life and the lives of your loved ones. If I offered you 1 million
dollars in a Traditional IRA or 1 million dollars in a Non-Qualified account, which one would you
want? You would take the non-qualified account of course. The Traditional IRA has 1 million dollars
that have not yet been taxed! All situations vary but the point is you want money that has the least tax
burden.
When it comes to legacy planning – that is leaving money behind to loved ones, are you considering
moves in your lifetime that would leave behind that money that is less burdened by taxes? Congress
just passed Secure Act 2.0 that again changes the rules for required minimum distributions. People
spend time every year shopping CD and mortgage rates, considering ways to increase their investment
returns; but have you considered how strategically taking distributions out of your Traditional IRAs may
result potential tax savings? It may be challenging to eliminate the total tax liability on money you leave
behind but it is worth exploring your options inside of a financial plan crafted by a Certified Financial
Planner®.