Charitable gift annuities (CGAs) have a long history, but they are certainly not an outdated option. On the contrary, recent legislative and market forces might make this the best time in a long time for donors to explore the benefits of CGAs! If your organization offers CGAs, here are five compelling reasons why 2024 might be the right time for donors to use this powerful giving tool.
1. Newly Increased Gift Annuity Rates
Effective January 1, 2024, the American Council on Gift Annuities raised the suggested maximum gift annuity rates again to the highest level they’ve seen in years.
Single-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% |
2. Continuing High AFRs
While the applicable federal rate (AFR) did decrease slightly from December (5.8%) to January (5.2%), these rates in the latter half of 2023 and the beginning of 2024 are the highest they have been in over a decade. And don’t forget that the donor can choose among three AFRs—the rate for the current month or either of the previous two months. A higher AFR means donors qualify for a higher tax deduction on the gift portion in exchange for slightly less tax advantage on the annuity payments.
3. New, Higher Maximum for CGAs Created Through QCDs
For IRA owners age 70½ or older, the SECURE 2.0 Act created a one-time qualified charitable distribution (QCD) to create a new CGA (or CRT). The distribution is tax free and counts toward the IRA owner’s required minimum distribution if one is due. Spouses can combine QCDs from their separate IRAs into a joint-life CGA. The SECURE 2.0 Act set the maximum amount at $50,000. However, beginning in 2024, this amount is indexed for inflation, meaning the maximum this year is $53,000. For donors interested in this option, make sure they are aware that some CGA rules are different when the CGA is funded using a QCD. (For example, all payments are taxed as ordinary income and may only be distributed to the IRA owner and/or the owner’s spouse.)
4. Cooling Inflation
While cooling inflation is an exciting prospect for retirement planners, it is particularly important for those interested in any kind of annuity. The payment amount is locked in at the time the donor establishes the CGA. Because it does not increase over time, less inflation means the payments retain more value. While the substantial inflation levels of recent years might have caused some trepidation among donors, today’s reduced inflation might give a more positive outlook for CGAs!
5. All the Traditional CGA Benefits
CGAs are a powerful option for donors and charities alike. Donors receive:
• an income payment for life, paid out to one or two annuitants
• a payment amount determined by the size of the gift, the age of the annuitant, the current gift annuity rates, and when payments will begin
• a stable payment amount, unaffected by market forces or other future changes
• multiple levels of tax advantage—an immediate income tax deduction, annuity payments that are partially tax free, and (if the CGA was established using appreciated property) capital gains tax on the annuity portion that is spread out over the annuitant’s lifetime
• an effective way to meet personal and philanthropic goals
This is an exceptionally favorable time for donors to consider using charitable gift annuities to qualify for a deduction, secure a tax-advantaged income stream in retirement, and create a legacy that makes a lasting difference.
