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How to Get Paid for Giving – Charitable Gift Annuities

Last update on: Jun 22 2020

A way to combine two tax benefits and receive a stream of income for life is the charitable gift annuity. Once an obscure vehicle, gift annuities are becoming more popular as the Baby Boomers age and charities become more sophisticated.

The charitable gift annuity is a simple concept. An individual transfers wealth to a charity. The transferred assets can be cash, securities, real estate, or anything else the charity will accept. In return the charity promises to make regular payments to the individual for life. With many charities, the payments can begin immediately or deferred until the individual is ready to receive them.
The individual also receives a tax deduction. The amount of the tax deduction and of the income payments depends on the donor’s age. The older the person is, the greater both the tax deduction and the income payments. Most charities follow the recommendations of the American Council on Gift Annuities, so the payment amounts are roughly uniform among these charities. The recommendations are designed to leave the charity with about 50% of the gift to use for charitable purposes. You can get a good estimate of your income payments and tax deduction by checking The table nearby gives some examples.

Keep in mind that the amounts in the table will change with interest rates. Rising interest rates reduce the tax deduction.

You should not consider a gift annuity unless you have a charitable intent. A higher income is available through a regular annuity. For example, according to, a 65-year-old man could deposit $100,000 and receive monthly payments of around $670, or $8,040 annually. Even the benefits of the tax deduction are unlikely to be sufficient to put the charitable gift annuity on par with a standard immediate annuity.

Keep in mind that the annuity payments are fixed. There is no protection from inflation, and there is no benefit if interest rates rise in the future.

Most charities do not take out backup annuities with insurers or take other steps to guarantee their payment obligations. With large, established charities that should not be a concern. With other charities, donors should determine that the charity is financially sound and will be able to fulfill its payment obligations.

As with regular annuities, part of your annual income will be tax-free until an amount equal to your initial payment has been returned, which will be when reaching life expectancy as determined by IRS tables. For most people, about 40% to 50% of the annual income will be tax free until life expectancy. If you purchased the annuity by donating appreciated assets, part of the payments might be taxed as long-term capital gains. The rest will be ordinary income. After reaching life expectancy, the payments are fully taxed as ordinary income. The IRS Publication 575, Pension and Annuity Income, gives details on how to determine the taxation of each annuity payment. It is available free at

Major charities provide some flexibility. You might be able to schedule the payments over the joint lives of you and your spouse or another person. You might be able to defer the beginning of the payments. You also might be able to elect payments over a period of years instead of for life.

It is important not to compare payments from gift annuities with yields on bonds or other income investments. With the annuity, part of each payment is a return of your principal. Gift annuities should be compared only with commercial immediate annuities. Then, you will see the effect the charitable contribution has on your income and decide if you can afford the gift.

Most donors establish gift annuities with several charities. This gives them some diversification in case one of the charities has financial problems. It also allows them to spread their gifts over several causes instead of lumping them into one.

Because of the inflation factor and reduced income, most people do not establish gift annuities until sometime after age 70.

Donors also should realize that they should not put all their money into gift annuities. The annuities do not allow accelerated payments or tapping of principal in case of financial emergencies or status changes. You should have some assets in more liquid investments for those purposes. Also, if you die prematurely, the charity keeps the windfall. Except for a joint life beneficiary, heirs receive nothing from an annuity.

Charitable Gift Annuity Examples


Donor’s age 60 65 70
Gift amount $100,000 $100,000 $100,000
Annual annuity $5,700 $6,000 $6,500
Tax deduction $34,673 $38,539 $41,982
Source:, click
on “Donor Direct,” click on “Charitable Gift



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