If you are interested in steady income in retirement with an attractive return and low risk, consider a charitable gift annuity. In this low interest-rate environment, a CGA can not only provide you with peace of mind, but it can also give the added satisfaction of doing good.
According to a recent article from Cleveland Jewish News, with a CGA, a charitable organization pays a fixed annual income for life in exchange for a contribution of cash or marketable securities (like publicly traded stock). Income payments can go to the donor or a designated beneficiary, and the amount depends on the age of the beneficiary at the time of the contribution. The annual payment will increase with the age of the beneficiary, as well as when payments are deferred. The charity keeps any money that goes unpaid upon the death of the beneficiary.
Here is an example of how a CGA can help increase cash flow while supporting a charitable cause:
Jane, who is 76 years old, usually gives to a local food bank but is concerned that her fixed income won’t allow for it much longer. She owns 200 shares of a publicly traded stock that she bought several years ago for $8,000. The shares are now worth about $10,000 and pay Jane an annual dividend of $250. She decides to contribute the shares to the food bank to fund a 6% CGA. The food bank will then pay Janet $600 annually for life, $350 more than the annual dividends. Furthermore, $370 of each annuity payment will be tax-free for 16 years. Assuming a 15% tax rate, Janet can claim a current tax deduction of $4,690, saving $140 over time in capital gains taxes. Per Jane’s request, the food bank will use any remaining CGA funds for an endowment in her memory after her death. She has successfully increased her cash flow while supporting her favorite charity, creating a permanent philanthropic legacy. It’s a win-win.
There are several factors to consider when thinking about adding a CGA to your portfolio. Be sure that the sponsoring charity you are considering has the resources to guarantee uninterrupted annuity payments. Also, compare CGA rates among different charities before you commit to one. Most follow the standard rate set by the American Council of Gift Annuities, but it’s best to be certain. You can expect the sponsoring charity to provide a complete, personalized illustration of how the CGA will work based on your circumstances.
A charitable gift annuity provides several financial benefits, like immediate and guaranteed income. A portion of the annual income payments are also tax-free, and the donor may receive a charitable income tax deduction. There also may be savings on capital gains if the donor uses appreciated securities for the CGA. As with any important financial decision, it is always recommended to talk with a trusted legal or financial advisor.
Written by Rachel Summit
