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Charitable Gift Annuity (CGA)

With a CGA, a donor can make a gift and receive a guaranteed stream of fixed income payments for life.

Your clients may find that one or more CGAs can be a rewarding part of their retirement plans. Consider the following:

A donor can implement a CGA with a modest contribution of cash, stocks, or mutual funds.
A donor can elect a payment arrangement that is convenient (typically, annually or quarterly).
A donor qualifies for an immediate income tax charitable deduction for the gift part of the transaction (not the annuity part of the transaction), subject to AGI limitations.
Donors who fund a CGA with appreciated assets may be able to spread out capital gains tax liability.
Part of each annuity payment may be income tax free.
The CGA provides a dependable lifetime income stream for the donor and/or a loved one (two people max).

The payment amount is based on:

The amount of the gift (higher gift amount = higher payment amount)
The age(s) of whoever will be receiving the payments (older annuitants = higher payment amount)
When payments will begin (deferring the start of payments = higher payment amount)
The current rates for charitable gift annuities

Sample one-life gift annuity rates, effective January 1, 2024.

Age	70	75	80	85	90
Rate	6.3%	7.0%	8.1%	9.1%	10.1%

Rates are subject to change.

OPTION 2—a deferred CGA

This is an easy way to make a gift now, but start receiving payments at a specified future date. Donors can time payments to retirement while locking in a higher income payment compared to an otherwise similar immediate CGA.

The donor selects a payment start date at least one year in the future.
The gift still qualifies for an immediate income tax deduction.

OPTION 3—a flexible deferred CGA

This is simply a deferred CGA with an unspecified future start date. It allows a donor to postpone the decision on when to begin receiving payments within a predetermined time frame.

The immediate deduction will be based on the earliest possible start date.
The annuity rate increases with each year payments are deferred.
Payments will begin automatically at the end of the time frame if the donor hasn’t yet asked for them to begin.

This added flexibility is particularly useful for those who:

Want to begin payments at retirement but haven’t yet chosen a retirement date
Face a future expense without clear timing (such as the anticipation of needing to pay for a relative’s nursing home care at some point in the future)
Want to maximize their annuity rate (and therefore payment amount) by waiting but are concerned they may need to begin receiving payments earlier

Evaluate the fit.

CGAs may be a particularly good option to consider for those who:

Are retired or near retirement
Want to establish a source of fixed income payments to supplement other income streams in retirement
Want to establish a source of fixed income for a loved one
Could use a current charitable income tax deduction
Would like to get rid of appreciated assets but don’t want to pay the associated capital gains tax
Own an IRA (age 70½ or older) and wish to make a one-time distribution to create a CGA
Are comfortable funding the CGA with a minimum of $10,000

See how it works.

Example one. Susan makes an irrevocable gift of appreciated stock using a charitable gift annuity. In return, the UMass Foundation agrees to make lifetime annuity payments to Susan based on her age, the gift annuity rate, and the gift amount. Susan enjoys favorable taxation—part of each payment is tax-free return of principal, part is long-term capital gain, and the remainder is taxed as ordinary income.

Example two. Andy (age 58) doesn’t need additional income right now, but he would like to reduce his current income tax liability and supplement his future retirement income. He selects a deferred charitable gift annuity. He makes an irrevocable gift, and in return, the UMass Foundation agrees to make lifetime annuity payments to Andy beginning in 10 years. Delaying the start of payments increases his annuity income and qualifies for a larger tax deduction.