How Big Is The Tax Break? (Tax-free Structure)
When you take an all-cash settlement, you must invest the funds to generate income. Your returns are then reduced by taxes to determine your net or "spendable" income.
Since structured settlement payments are free from income taxes, you receive the full payment. See how the two compare using the same dollar amount, interest rate, and time period:
| |
|
|
Cash |
Structured |
| |
|
|
Settlement |
Settlement |
| Initial Amount |
|
|
$50,000 |
$50,000 |
| Interest Rate |
|
|
5% |
5% |
| Annual Income |
|
|
$2,500 |
$2,500 |
| less tax (28%) |
|
|
-$700 |
- |
| Net Annual Income |
|
|
$1,800 |
$2,500 |
| |
|
|
|
|
| Difference over 20 years: |
|
|
|
|
| Total income: |
|
|
$36,000 |
$50,000 |
$ Difference |
|
|
|
$14,000 |
% Difference |
|
|
|
+39% |
The structured settlement provides the best yield after taxes are taken into account. When you figure in state and local taxes, the advantage becomes even greater.
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