Give the Gift of Giving: Charitable Gift Annuity for Holiday Joy & Income Bliss

This holiday, consider making a gift that keeps on giving…to you.

It’s well-known that charitable contributions made before yearend can provide a tax deduction. But, a charitable gift annuity (CGA) can be set up to offer some tax benefit and a lifetime annual income.

A CGA is basically a contract between you and a qualified nonprofit that allows you to donate cash, assets, or securities. In return, you receive a partial tax deduction and a fixed income stream for the rest of your life. When you die, the remaining annuity stays with the charity.

Amid two years of inflation and growing concerns Social Security will run out of money, retirees might be looking to secure reliable income for those golden days. A CGA could help, experts say.

“It can be a really good option if you want to support charity but want to retain cash flow,” said Greg Olsen, partner at wealth management firm Lenox Advisors.

How does a charitable gift annuity work?

You donate money, securities or assets to a nonprofit organization that offers charitable gift annuities. The charity invests part or all your donation. Based on your age at the time of the gift, you receive a fixed monthly or quarterly payout (typically supported by the investment account) for the rest of your life.

Younger people may receive more payments over their lifetime, but they’ll likely be smaller than those for older adults who receive larger but fewer overall payments. Whatever remains of the gift at your death goes to the charity.

Consider a charitable gift annuity this holiday. It's a gift that also pays you income. https://t.co/EUiZWtxBUu
— USA TODAY Money (@USATODAYmoney) December 3, 2023

If you donate jointly with a spouse and you pass away, your spouse may continue to receive income until their death.

Donations may be as little as $5,000 but usually run much higher.

Is a charitable gift annuity tax deductible?

If you itemize your taxes, you may be eligible for a partial tax deduction instead of taking the standard deduction in the calendar year you gave the gift. If you want to claim a deduction for 2023, Olsen said the CGA must be set up by Dec. 31. Fortunately, it’s inexpensive to do and can be done in about a week or two. Contact the charity you’re interested in, and they can walk you through it.

The deduction is based on the estimated amount that will eventually go to the charity after all the annuity payments are made.

How is income from a charitable gift annuity taxed?

Olsen said that part of your annual fixed payments may be tax-free for a period of time. The portion that’s taxed will be considered ordinary income and taxed at your federal and state income tax rate.

How does a charitable gift annuity work?

Is a charitable gift annuity tax deductible?

How is income from a charitable gift annuity taxed?

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