Lump Sum or Payments?

[jonnycat]

If given a choice would you take monthly payments of $2600 for ~ 8 years ($240,000) or $207,500 lump sum, bearing in mind it is taxable income.

So the lump sum choice would result in a tax payment at the highest tax bracket in one payment, and the monthly payments added to yearly wage can be knocked back down into the third taxbracket with RRsp contributions every year.

Which route would you take to maximize dollars?

[lint]

what are you doing with the money? estimated investment returns? lots of variables

[jonnycat]

It would all be invested, nothing risky.

[Canmorite]

Originally posted by lint
what are you doing with the money? estimated investment returns? lots of variables

Lots of variables. You need to find out what kind of rate of return you are going to get, and see if it will make up for the $32,500 gap over 8 years.

If you invest $207,500 today at ~1.84%, in 8 years you will have $240,000. You need to make over that 1.84% on your investment.

Of course you will need to work out how much after tax dollars you will have on $207,500 to do the actual calculation.

Say if you have $150,000 after taxes, you will need a rate of return equal to 6.01% per year to grow that into the $240,000.

These are really rough calculations...

[ExtraSlow]

Myself, at first glance I'd take the payments because they would be taxed at a lower rate, and . . .

Wait, now I'm thinking about it, and maybe I'd prefer to take the lump sum and put it in an income producing investment. I could get an easy eight percent with fairly low risk on that much money, and I would be way ahead . . .

Damn, I don't know.

[jonnycat]

Originally posted by ExtraSlow
Myself, at first glance I'd take the payments because they would be taxed at a lower rate, and . . .

Wait, now I'm thinking about it, and maybe I'd prefer to take the lump sum and put it in an income producing investment. I could get an easy eight percent with fairly low risk on that much money, and I would be way ahead . . .

Damn, I don't know.

I know, I've been back and forth on this. What I was trying to get at, was how would you guys deal with the situation barring any trips to the casino and letting ride on black.

[Darkane]

Invest the whole thing in Pink sheet penny stocks!

Lol, but seriously this is a good question. Taking the monthly's and maximizing RRSP's every year isn't bad.

You know, a fairly safe bet for stocks (IMO) Is Suncor right now. They are like 25 bucks, and they were at 75.

Oil will go up eventually and Suncor's been operating since 1967 will survive this just like the 80's and 90's.

Food for thought.

[The_Rural_Juror]

Suncor's credit rating was downgraded a few weeks ago. It's still not a bad buy.

[djayz]

If you're going to put it in a safe stable investment take the lump sum and reinvest anything it pays out.

If you're planning on using the money or investing it in a broad range of things take the payments to reduce your yearly tax.

Personally I would take the lumpsum, put it in a dividend stock reinvested. Once the dividends have paid for 50% of the initial investment I'd pull out the lump sum and use the money or find some other invesment.

Both ways are very lucrative but it's totally depending on your situation, if you can get away with the 2600 a month while staying in the lowest tax bracket that would be good.
But it could also be good if you're close to or in the highest tax bracket to just take the lump sum because you're going to end up paying the same tax rate on it.

[lasthuzzah]

Lump sum. Take the tax hit, buy a Gallardo and daily drive it in the winter. Its' all wheel drive you know! :) Seriously, I would take the $2600/month for 8 years, less chance to stupid stuff with it.

[Kavy]

Originally posted by lasthuzzah
Lump sum. Take the tax hit, buy a Gallardo and daily drive it in the winter. Its' all wheel drive you know! :) Seriously, I would take the $2600/month for 8 years, less chance to stupid stuff with it.

But with a declining dollar and inflation how does 2600/month look 5 years from now?

[icky2unk]

sounds like finance 317 all over again

[max_boost]

You are going to get so many different answers on what to do with the money.

I'll take the lump sum and go long on gold and short on oil for the next two months. I'll let you know in April how my plan works out alright .

:D

[IhateDomestic]

Get Peter Tracey on here! ;)

[Mys73ri0]

congrats on winning the lottery

[anothers10]

Originally posted by Mys73ri0
congrats on winning the lottery

he would not be paying taxes if he won the lottery

[UndrgroundRider]

Knowing where the money is coming from and why is the most important part. There are probably ways of deferring the taxes on the lump sum that you are overlooking, but it all depends on the details.

[jonnycat]

I just found out that even though there is an option for taking the monthly payments, it isn't applicable in this case, specific orders in the contract require immediate current value payoff. Lump sum is the only option and 30% to be withheld for taxes. Fucking government, I'll probably get dinged another 10% for Provincial taxes next year.

[Beerking]

I do not ponder about something that will never happen to me.

I'm gonna go eat my KD now:(

[lasthuzzah]

Originally posted by Beerking
I do not ponder about something that will never happen to me.

I'm gonna go eat my KD now:(

Go buy a lotto ticket! And Nooodles FTW :)

[Beerking]

Originally posted by lasthuzzah


Go buy a lotto ticket! And Nooodles FTW :)

I have bought 2 in my life. And every time I do I get such bad anxiety thinking that I will win and what I will do with the money, that it is not worth. Too add to that I haven't even gotten 1 number right.:confused:

[jonnycat]

$39 million tonight though.