Retirees face planning pressure from many factors, including inflation, higher interest rates, market uncertainty, and longevity risk. Charitable gift annuities (CGAs) have always been an attractive option for those seeking to make a significant charitable gift and secure an income stream—particularly older donors who are financially secure and philanthropically inclined. CGAs are an even more compelling option today, thanks to recent positive changes. If your organization offers CGAs, make sure you’re highlighting their many upsides, both new and old!
NEW—the highest rates in a decade
The American Council on Gift Annuities raised the suggested maximum payout rates effective January 1. Retirees considering a CGA may want to think about locking in these higher rates—and, of course, the higher income payments that result.
NEW—the ability to fund a CGA from an IRA
The SECURE 2.0 Act includes the creation of a new one-time qualified charitable distribution (QCD) option. IRA owners age 70½ or older can direct up to $50,000 from an IRA to create a new charitable gift annuity (or charitable remainder trust). This distribution does not qualify for a charitable income tax deduction, but the tax-free distribution counts toward the donor’s RMD if one is due, making it well suited for retirees who are required to take distributions they don’t need. The benefit of keeping the distribution amount out of the retiree’s taxable income, potentially keeping the donor in a lower tax bracket, is available to all, including nonitemizers (which can be helpful in a time when fewer people are choosing to itemize thanks to the high standard deduction).
Under this option:
• Income payments may only go to the IRA owner and/or the owner’s spouse.
• Income payments are fully taxable as ordinary income.
• The IRA owner and the owner’s spouse may each choose to direct $50,000 from their own IRAs into one joint-life CGA.
• The CGA must be immediate, not deferred.
PLUS—all the traditional benefits of CGAs
An easy giving option. It is simple to set up a CGA, and the minimum gift requirement is modest.
Stable income for life. Donors can meet charitable goals and support meaningful missions while securing a dependable lifetime income unaffected by any changes in the market. The payment amount is determined primarily by the size of the gift and the age of the annuitant—the older the donor, the higher the income payments. Single-life annuities pay higher income amounts than joint-life CGAs. Deferred gift annuities will result in higher payments than immediate annuities.
Multiple tax advantages. Retirees are mindful of how taxes impact their resources. CGAs offer an immediate charitable income tax deduction based on the present value of the charitable gift, plus tax-advantaged income payments (a portion of each payment is tax free until the donor reaches life expectancy). In addition, if the donor funds the CGA with an appreciated asset, no capital gains tax is due on the gift portion, while any capital gains tax attributed to the annuity portion is spread out over the donor’s life expectancy. (Remember that CGAs funded using the new QCD option have slightly different tax benefits, as discussed earlier.)
