“Charitable gift annuities are the gifts that keep on giving,” according to Stan Haithcock in an article for Marketwatch.(1) Gift annuities are much like the typical annuity product that a person may be familiar with. They work in a similar way to single premium immediate annuities (SPIA) and deferred income annuities (DIA) because they can pay you a guaranteed lifetime income stream.* Depending on the annuity, you can choose to start your income immediately or defer it to a certain date in the future. Sometimes there is also the option to have your charitable gift annuity paid out over your lifetime, two lives in succession or to make your annuity a joint and survivor product. Gift annuities provide a financial gift to the charity of your choosing when you die.
The American Council on Gift Annuities (ACGA) regulates all charitable gift annuities, sets the payout rates and promotes the philanthropic use of gift annuities in general. They have been around since 1927 and can be a great resource for questions related to the use of charitable gift annuities. The charity that issues your gift annuity might be also to help answer your questions about the process and benefits. Gift annuities can offer tax benefits that are not available with an SPIA or DIA. Part of the income payments from a gift annuity purchased with cash might be tax free.# Part of the guaranteed* income payments from a gift annuity bought with real estate or securities that are older than one year might also be tax free.# Your particular charity will give you a 1099-R form detailing the tax free portion of your income payments. It might be wise to work with a qualified tax professional when you purchase a gift annuity to help ensure that your individual tax needs are taking care of.
Mr. Haithcock’s Marketwatch article says that there are more than 15 different types of annuity products. With so many different types of annuity products, it may be hard to determine how some might be more beneficial to certain individuals than others. You purchase gift annuities directly from a charity or nonprofit, so there is typically no agents involved. By purchasing a charitable gift annuity, any money left in the annuity after your death goes to the charity of your choosing. Charitable gift annuities allow you to help create a lifetime income stream to supplement Social Security or pensions and then be a philanthropic citizen by leaving money to your favorite charity or alma mater. Our Top 40 Charitable Gift Annuities list is a good place to start if you are looking for somewhere to begin your gift annuity research.
* Annuity guarantees rely on the financial strength and claims-paying ability of the insurance company that issues the contract. Lifetime income may be a benefit of the base policy, or a rider may be available for purchase that provides that benefit.
# Tax-free cashflow may be available through one of several strategies like using an existing Roth IRA in conjunction with a charitable gift annuity for guaranteed* income and philanthropic gifting, converting traditional IRA to a Roth IRA, or other possible options. Income taxes will apply to traditional IRA distributions and conversions.
1 Haithcock, Stan. “Charitable gift annuities are the gifts that keep on giving.” Marketwatch, June 9, 2015. http://www.marketwatch.com/story/gift-annuities-are-the-gifts-that-keep-on-giving-2015-06-09?page=1
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This material has been prepared for informational purposes only. It is not intended to provide, and should not be relied upon for tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.
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