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A Charitable Gift Annuity Helps You and Your Favorite Charity


Now might be a good time to consider purchasing a charitable gift annuity. These annuities work in a similar manner to immediate annuities, but you leave money to a charity instead of an insurance company. Dan Caplinger recently took a deeper look at charitable gift annuities in The Motley Fool article “Is a Charitable Gift Annuity Right For You?” These annuities offer lifetime income as well as a nice tax deduction, but they also leave money on your behalf to your favorite charity. This is beneficial to those who wish to leave money to a charity, but also worry that they may need some of that money to live off of later in life.

You purchase a charitable gift annuity with an upfront sum of money or stocks. The charity promises to pay you lifetime income starting either immediately or at a later date if you choose to defer the payments. With some charities, you have the option of either a single life or joint life annuity as well. This all sounds very similar to regular old annuity products, except a charity will get your money instead of an insurance company. Once you have given your money to the charity, you no longer have access to those funds. While most people will receive payments from a charitable gift annuity, there are some people who chose to defer their payments that will die before they receive their money. They are okay with that situation though, because the money will go to benefit their favorite charity. Even if you don’t receive all of the income payments you thought you would, there is still an immediate tax benefit received from a charitable gift annuity. You will receive a tax deduction on the difference between the value of your annuity and the total value of your gift.

This annuity value is one of the more complex items with a charitable gift annuity. This value is calculated using many different figures, including current interest rates, the amount of the annuity payments you will receive, how often you are going to receive payments, and whether you have chosen a joint or single life annuity. You can find a lot of resources online to help you understand the value of your charitable gift annuity and the current interest rate according to the IRS. The American Council on Gift Annuities offers a lot of information and any charity that has annuities will also be able to answer your questions.

Charitable gift annuities have tax consequences that are important to understand before making your purchase. Part of your annuity payment is a return of your capital and the rest of it is taxed as ordinary income on your tax return. This is just like it would be with any immediate annuity product that you would purchase. There is a lot to consider before buying a charitable gift annuity, but it’s worth researching if you have your heart set on leaving some of your money to a charity. If you buy a charitable gift annuity, you can protect your own future finances and leave money to your favorite charity at the same time.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

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