WSOP Windfall... What am I to do?
 

Hey all,
I recently posted this in the El Diablo forum and was told to repost here. So here I go. If you need any more information then please ask as I don't know exactly what info you folks will need. I want to learn about this stuff so I can do it on my own and am fairly zealous about the process so I look forward to book recommendations as well.

I am a 23 yr old college grad who currently is renting a 1BR in Boston till Sept 1. After that I don't really have a problem renting for a little while longer, I enjoy the city and dont have any real need to buy a house immediately. I have $19,000 in college loans left sitting @ 4.75% interest and besides that am totally debt free.

Along with the $244k I won at the WSOP I have another $100k+ in winnings this year so I looking at around $380k or so net income before taxes. My main goal right now would be to knock that number down a bit with some tax deferred accounts, but unfortunately I think I might make too much for some of the options out there.

I plan on investing approximately $150k-$200k of my winnings right now and would like to use it for the future rather then the here and now. I am employed right now part time as well and make about 30k outside of poker, which I file as income from my own business (as it is contracted work). That pays for bills for the most part and I use my poker money for savings. My main goals here are to:
A) Decrease my tax liability
B) Build for early retirement
C) Increase my attractiveness for a mortgage (As a self-employed poker playing 23 yr old I am not candidate #1 on mortgage company's lists)

Also I have a credit score in the high 600s if that makes any different. Thanks.

Re: WSOP Windfall... What am I to do?
 

im not sure if the student loan debt is tax advantaged or not. if it is, definitely don't pay it off as you have an arbitrage there, and even if it isnt I still think you might not want to pay it off right away (but if the alternative is money simply sitting in a csavings account you are probably losing a small amount in return for the flexibility of having access to that money for the period of the loan).

I think you should be able to open a SEP_IRA account - this has the massive benefit of a 45k max contribution limit in 2007 and rising going forward. you can confirm your eligibility easily by doing it through ameritrade or schwab or vanguard, they want to make it easy for you to give them your money.

the sep-ira is great - total amount contributed is deductible and growth is tax deferred, downside is you cannot access the money without penalyt until 59 1/2 - there may be an exception or two to that last part, not positive.

with the balance of your money i would think about opening a vanguard or discount brokerage account and investing in index funds. you may also want to explore your mortgage options because I think a smart thing to do at some point would be to buy a place to live - but this would have to be at a time in your life when you are less transitive because renting definitely is more flexible and it is cheaper in the short run.

I think that you would be surprised what type of mortgages you qualify for and i would guess buying a place for you the bottleneck will not be the mortgage, but finding a place that suits you and a time in your life when it makes sense.

Re: WSOP Windfall... What am I to do?
 

stox,
thank you very much for the response.

Re: WSOP Windfall... What am I to do?
 

If your a professional player (and your winnings suggest so) have you considered the possibilty of expatriation? Seeing as a professional online player has reasons to reside out of the united states it is an option worth thinking of. By formally moving your permanent residency out of the country you have the potential to severely limit your tax liability, and do so legally. Remember not only income earnings but investment earnings like dividends and capital gains. Think of the increased cumulation to a non-taxable brokerage account.

Not that you have to give up your homeland and country, but is spending half the year and a day elsewhere (think beeches and resort living) so bad? You can still visit whenever you like, fammily friends and B&M casino's / tournamnents. Just an idea fwiw.

Re: WSOP Windfall... What am I to do?
 

So I just ran some numbers on what $45k would be in 2044 when I am 60 and it comes out to like 775k, so if I could do the same kind of lump investment a few times in the next few years I will be good when I get to my blue haired years.

Re: WSOP Windfall... What am I to do?
 

Don't forget that the 775k in 2044 might not be worth as much as you think it is (assuming you didn't discount for inflation). Most people assume somewhere around 10% for investments and 4% for inflation (I'm guessing here and would be interested in other people's #s). So you're only netting 6%.

Now if it's in a taxable account and you're paying 30% tax you're paying 3% in taxes (10% earnings at 30%) so you're only netting 3%.

Re: WSOP Windfall... What am I to do?
 

I hope you are planning on writing off some gambling losses.

This will reduce your tax bill considerably.

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
im not sure if the student loan debt is tax advantaged or not.

[/ QUOTE ]

It's not deductible at his income level.

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the sep-ira is great - total amount contributed is deductible and growth is tax deferred, downside is you cannot access the money without penalyt until 59 1/2 - there may be an exception or two to that last part, not positive.


[/ QUOTE ]

Accessible but with penalties.


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I think that you would be surprised what type of mortgages you qualify for and i would guess buying a place for you the bottleneck will not be the mortgage, but finding a place that suits you and a time in your life when it makes sense.

[/ QUOTE ]

Yes a low LTV will open lots of doors. I agree with the time in his life sentiment. I'm frankly a bit puzzled by the 23 year old poker player wanting to lock himself into a particular home and area for the next 5-10+ years.

OP,

I said it in the previous thread and will say it again. Call Vanguard, you qualify for a Voyager account which has all the hand holding and advice you will need. I say this as you do not seem all that interested in learning about investments on your own and have expressed concern about commission based advisors.

J

Re: WSOP Windfall... What am I to do?
 

Start watching CNBC religously.

Re: WSOP Windfall... What am I to do?
 

Congratulations on your winnings.

I'd imagine there's going to be quite a few foreclosures in the upcoming months in Boston ... if it interests you, I would read up on foreclosures and try to take advantage of that situation

Since it sounds like you're kind of a low maintenance guy, you might also want to look at properties in your area that are multi-units ... that way you could buy one, live in one unit and rent out the other 1+ units to help pay your mortgage

Re: WSOP Windfall... What am I to do?
 

Perhaps a 10 acre parcel of Iowa farmland. [img]/images/graemlins/smile.gif[/img]:)

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
Perhaps a 10 acre parcel of Iowa farmland. [img]/images/graemlins/smile.gif[/img]:)

[/ QUOTE ]

Will we ever have another thread where fish does not hype farmland. I swear ever thread I read has a comment from him in there. Why haven't the mods told him to cool off yet.

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
[ QUOTE ]
Perhaps a 10 acre parcel of Iowa farmland. [img]/images/graemlins/smile.gif[/img]:)

[/ QUOTE ]

Will we ever have another thread where fish does not hype farmland. I swear ever thread I read has a comment from him in there. Why haven't the mods told him to cool off yet.

[/ QUOTE ]

Dude, I WAS JOKING..........GEESH.

Re: WSOP Windfall... What am I to do?
 

Back to the topic.......

As far as getting a mortgage for a house, you will have no problem if you put down a 20% down payment, which you should be doing anyway to avoid mortgage insurance. Plus, you have a decent paying job already.

Getting into house(presumably if you are planning on staying there 6+ yrs) is a sound idea for a young man such as yourself.

I presume you are still going to need a poker bankroll, correct?

Re: WSOP Windfall... What am I to do?
 

I found this at MONEY.com..................


Wising up to a windfall
Sure, a big fat inheritance would make your life easier. But are you really sure you'd know how to handle it?
By Amanda Gengler, Money Magazine writer-reporter
June 20 2007: 11:00 AM EDT


(Money Magazine) -- Anne Schuette, sadly, was not surprised when her mother, Dorothy, died in 2003 after years of battling cancer. But discovering that her mother had left her and her two siblings $400,000 each was a shock. "I had no idea she had that much money," says Anne, 48, who described the revelation as "bittersweet."

It's also scary. Four years after they got word of the inheritance, Anne, who lives in Sherborn, Mass. and is a program manager at an Internet-security company, and her husband Magnus Nicklasson, 43, a tennis pro, are still paralyzed by their options. Should they prepay their mortgage? Purchase a vacation home? Invest it all for retirement?


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Money Magazine's Walter Updegrave helps a reader who has inherited a large windfall.
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With no clear strategy, Anne and Magnus have kept their inheritance in the mix of IRAs, annuities, managed accounts and cash that Anne's mother set up while she was alive. "It's a bunch of money, and we don't want to blow it," says Magnus.

It's hard to plan for an inheritance. It seems greedy, for starters, and the money may never materialize. Much of what financial service firms have touted as the Greatest Transfer of Wealth in Human History has been siphoned off by growing life spans and skyrocketing medical costs. As a result, the majority of people who have received an inheritance had no idea it was coming, according to a recent Putnam Investments survey. Fewer than one in five had plans for it.

So if and when an inheritance comes your way, you may suddenly have some unexpected number crunching - and soul searching - to do. "For a short period of time your choices seem infinite, and as cool as that is, it's overwhelming," says certified financial planner Susan Bradley, founder of the Sudden Money Institute, which provides guidance for people who come into new wealth.

Bequests are also full of potential pitfalls. One bad move, such as cashing out Mom's IRA, could cost you thousands in avoidable taxes. But don't let the fear of doing the wrong thing prevent you from making some lasting improvements to your family's finances. In all likelihood, the person who left you the money wanted you to get a leg up on some major financial goals. Follow these steps to make that a reality.

Call a time-out
Inheriting money shouldn't lead you to an "I'm going to Disneyland!" moment. Rash decisions can wreak havoc on your inheritance, so now is not the time to quit your job, buy around-the-world airplane tickets or open that artisanal pretzel shop you've dreamed of.

"We call it the decision-free zone," says Bradley. She recommends making only essential decisions initially, such as selling an inherited property you can't afford.

Other than that, leave the money where it is. If that's not an option, park it in safe investment vehicles such as a money-market fund or a certificate of deposit. Anything that can be put off (such as buying a home or a long-term investment) should be tended to only after you've had enough time to develop a clear game plan.

Bring in the experts
In the movies, inheritances are usually distributed in one convenient lump sum of cash. If only it were that simple. In the real world you're likely to inherit a variety of asset types, from bonds to IRAs to real estate, each with its own set of rules and implications. To understand them all (and make sure the bulk of your inheritance stays in your hands and doesn't go to taxes), you need to make two phone calls.

The first is to your C.P.A. or financial adviser, who can explain how each asset is taxed when you cash it out and, if you plan to spend some money, which accounts you should tap first. Next, dial your estate-planning attorney to discuss ownership of the assets. You may want to add your spouse's name to an account, move money into a trust or update your will.

Plug holes
Before a dime goes to anything else, use your money to solve today's problems as well as the ones looming on the horizon. Do you carry debt with punitively high interest rates? Are your retirement accounts underfunded? Are you on track to send your child to the college of his or her choice? If you have any issues like these, they get first dibs.

Set priorities
If you still have money on the table after you've covered the big, long-term concerns, make a wish list, says certified financial planner Diane McCurdy of Bakersfield, Calif.

Maybe you'd love to buy a beach house, take a big annual vacation, fund your grandchildren's education and own a sailboat. Unless you're dealing with astronomical sums, your inheritance will let you accomplish some - but not all - of these goals.

So start running the numbers on your dreams: If you buy the vacation home, can you still afford the boat? The yearly trips? Maybe you're willing to pass on the house if it means that you get the boat and the trips. "It's easier to give something up if you know what you'll get instead," says McCurdy.

Although Anne and Magnus are still working through their choices, they acknowledge that they are happy just to have the options. "When my mom's parents died, they left her a bunch of stocks to give her a financial cushion," says Anne. "I think she wanted to help us out in the same way."

Anne and Magnus are $400,000 richer. But now what? Certified financial planner Deborah Maloy of Wakefield, Mass. weighs in.

Beat back 5 financial fears

3 steps to the new you

Re: WSOP Windfall... What am I to do?
 

Here is a link to the above article...

http://money.cnn.com/2007/06/19/pf/s...ymag/index.htm

Re: WSOP Windfall... What am I to do?
 

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Start watching CNBC religously.

[/ QUOTE ]

THIS IS VERY DANGEROUS FOR BEGINNERS!!!

CNBC makes money from advertising and needs to create the impression of knowledge to attract viewers. as such, they narrate the markets.

but those narrations are horrendous at times and simply reiterate what is going on. when i watch it, it is 50% of the time on mute just to see where the markets have moved in the past hours/days or whatever. they do cover what is going on in the news.

so watch it with care. DO NOT "LEARN" from cnbc. absorb info and decide for yourself.

a good chunck of the time they have their own folks talk about market goings on, i disagree or reach the opposite conclusion based on the data.

Taleb gives an example fo the narrative fallacy that can be CNBC in his book:

back when US caught sadam:

13:01- US treasuries jump as global risk is seen to be reduced after sadam's capture

13:31- US 10yr yields move higher as the markets have already priced in the capture [or something along those lines]

basically, they give you stories w/ the data. those stories can be dangerous if you are not objective and DO NOT pass judgement.

remember: NOT PASSING JUDGEMENT or NOT TELLING A STORY is hard work for your brain. theorizing & storytelling is the default condition.

Barron

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
If your a professional player (and your winnings suggest so) have you considered the possibilty of expatriation? Seeing as a professional online player has reasons to reside out of the united states it is an option worth thinking of. By formally moving your permanent residency out of the country you have the potential to severely limit your tax liability, and do so legally. Remember not only income earnings but investment earnings like dividends and capital gains. Think of the increased cumulation to a non-taxable brokerage account.

Not that you have to give up your homeland and country, but is spending half the year and a day elsewhere (think beeches and resort living) so bad? You can still visit whenever you like, fammily friends and B&M casino's / tournamnents. Just an idea fwiw.

[/ QUOTE ]

I don't think you actually know anything about US Tax laws and how living outside of the USA affects anyone's tax liability. I haven't read the rest of this thread yet but I sure hope someone set this straight.

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
[ QUOTE ]
If your a professional player (and your winnings suggest so) have you considered the possibilty of expatriation? Seeing as a professional online player has reasons to reside out of the united states it is an option worth thinking of. By formally moving your permanent residency out of the country you have the potential to severely limit your tax liability, and do so legally. Remember not only income earnings but investment earnings like dividends and capital gains. Think of the increased cumulation to a non-taxable brokerage account.

Not that you have to give up your homeland and country, but is spending half the year and a day elsewhere (think beeches and resort living) so bad? You can still visit whenever you like, fammily friends and B&M casino's / tournamnents. Just an idea fwiw.

[/ QUOTE ]

I don't think you actually know anything about US Tax laws and how living outside of the USA affects anyone's tax liability. I haven't read the rest of this thread yet but I sure hope someone set this straight.

[/ QUOTE ]yeah I'm guessing jurollo won't want to do this anyways, but in reality, you are liable for the next 10 years of taxes to the us if you leave the country. If you want to not have to pay tax to the us govt, you are never allowed back in the country (even to visit) unless you pay taxes on the first 10 years after you leave. I could be wrong, but I believe this is the basics of it. There may be clever loopholes I'm unaware of, but I looked into this possibility for a little while when I had my first windfall as a poker player.

Re: WSOP Windfall... What am I to do?
 

I won't be leaving the US anytime soon, I had the chance to take a kickass fulltime job with a poker site last year and leave the country and I didn't take it. I am too close with my family and friends for that to be an option, good one or not.

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
I don't think you actually know anything about US Tax laws and how living outside of the USA affects anyone's tax liability. I haven't read the rest of this thread yet but I sure hope someone set this straight.

[/ QUOTE ]

I must admit I am not a US citizen but a Canadian one and so my opinons are colored by our laws, however tax structuring through IBC's is an entire industry originally designed for US citizens and US expatriates. There are some good resources, such as escapeartist.com that can give much more clarity then I can. However since he is not interested anyway its a non-issue.

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
[ QUOTE ]
I don't think you actually know anything about US Tax laws and how living outside of the USA affects anyone's tax liability. I haven't read the rest of this thread yet but I sure hope someone set this straight.

[/ QUOTE ]

I must admit I am not a US citizen but a Canadian one and so my opinons are colored by our laws, however tax structuring through IBC's is an entire industry originally designed for US citizens and US expatriates. There are some good resources, such as escapeartist.com that can give much more clarity then I can. However since he is not interested anyway its a non-issue.

[/ QUOTE ]

I'll set you straight. Everything you stated is 100% wrong for the USA. Don't give this advice to anyone in the future.

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I don't think you actually know anything about US Tax laws and how living outside of the USA affects anyone's tax liability. I haven't read the rest of this thread yet but I sure hope someone set this straight.

[/ QUOTE ]

I must admit I am not a US citizen but a Canadian one and so my opinons are colored by our laws, however tax structuring through IBC's is an entire industry originally designed for US citizens and US expatriates. There are some good resources, such as escapeartist.com that can give much more clarity then I can. However since he is not interested anyway its a non-issue.

[/ QUOTE ]

I'll set you straight. Everything you stated is 100% wrong for the USA. Don't give this advice to anyone in the future.

[/ QUOTE ]

Haven't considered it myself but isn't there this tiny, little detail omitted of having to permanently give up one's citizenship?

J

Re: WSOP Windfall... What am I to do?
 

Despite being 100% wrong the appropriate IRS form is 2555. Form 8854 is used to file in case of renouncing us citizenship/full expatriation but is less attractive. Publication 54 is an informative related guide from the IRS perspective. If forming an IBC, use a reputable law firm (I used Pardini of Panama).

Not trying to be arguementative, just being more concise which I should have done in my original post. My apologies for being careless, I should not have applied a non US perspective to a US situation without first verifying differences.

Good Luck Jurollo, sorry for polluting your thread.

Re: WSOP Windfall... What am I to do?
 

Congratulations.

As others have noted, the best thing to do would be to put as much money as possible into an IRA and then invest the money in your IRA and taxable accounts into index funds. Index funds are more sensible than individual stocks. They have the same expected return, but much lower variance. It's like multitabling in a way. If you want specific asset allocation recommendations, please ask. A very simple allocation plan would be to just stick it all in a balanced fund, such as Vanguard's Target Retirement 2050 fund.

Re: WSOP Windfall... What am I to do?
 

[ QUOTE ]
A very simple allocation plan would be to just stick it all in a balanced fund, such as Vanguard's Target Retirement 2050 fund.

[/ QUOTE ]

I would recommend against a target retirement fund since you don't want to hold bonds in taxable unless they're tax-exempt.

Re: WSOP Windfall... What am I to do?
 

If you see yourself earning over 100k per year and the majority of your earnings do not come from being a W-2 employee you should strongly consider incorporating yourself. The tax savings are substantial.

Re: WSOP Windfall... What am I to do?
 

By far my most profitable move ever was reinvesting my poker profits into my bankroll.

That said, I have a company and a SEP-IRA maxed out yearly. The company pays me enough in W2 income as the CEO to max the SEP, the leftover money is treated as a bonus (small tax benefit).