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Charitable Gift Annuities

Donate to a charity and get guaranteed income for life.

By , J.D.

Want to make a sizeable donation to a favorite charity, get a tax deduction, and arrange for some guaranteed income (some of it tax-free) for life? If so, it's worth exploring a "charitable gift annuity," which offers all these benefits. Another plus is that it's easy to create—the charity will be more than happy to help you.

How It Works

An annuity is a contract between you and the charity. You donate to the charity, and in return the charity agrees to make regular fixed payments to you (or to someone else you designate) for your lifetime. The goal is for the charity to end up with about half of your donation.

When you make your initial gift, you can take an immediate income tax deduction for the estimated amount that will eventually go to the charity, after all the annuity payments have been made. A portion of the payments you receive will also be tax-free, until you reach your statistical life expectancy.

Is investing in a gift annuity safe? Your return isn't guaranteed by the government. So it depends on the charity. If it files for bankruptcy or ceases to exist, you would be out of luck—a good reason to pick a well-funded and well-run charitable organization. Some charities have insurance to cover annuity payments.


The annuity pays you a set rate of return on your donation annually. The older you are, the higher the interest rate you will receive on the donated amount. The interest rates are suggested by the American Council on Gift Annuities (ACGA), a nonprofit organization that promotes these annuities. It sets the rates by looking at statistical life expectancies and tries to calculate the rate necessary to have 50% of the initial donation go to the charity.

For 2013, the ACGA suggests that a 55-year-old be guaranteed a 4% annual return. At age 65, the rate is 4.7%, and at age 70, it goes up to 5.1%. If you and your spouse create a gift annuity together, the rate is based on your combined statistical life expectancies. For a 55-year-old with a 60-year-old spouse, the rate is 3.7%. If one spouse is 68 and the other 70, the rate is 4.5%. (For a complete list of rates, see the ACGA website.)

Obviously, these are much better returns than you can get currently with a certificate of deposit. But the interest rate is locked in for your lifetime—which you may consider a drawback or an advantage. If interest rates go up significantly, you might wish you had made a different investment.

Payments can start immediately, or be deferred until you reach a certain age. Typically, payments are made quarterly.

Minimum Donation Amounts

Each charity sets a minimum amount you must donate if you want to set up a gift annuity. Commonly, the minimum amount is as low as $5,000 (Doctors Without Borders, the Denver Zoo, Salvation Army, American Red Cross) or $10,000 (PETA, Braille Institute of America, Amnesty International USA, University of California). If you're interested in a particular charity, check its website to see whether it has a gift annuity program and how much you must donate.

Minimum Age

Charitable gift annuities also set a minimum age for those wishing to donate; for most organizations, it's 50 to 65. That suits most people who are interested in annuities, who are approaching retirement and looking for regular income.

If you want to make a gift but are younger, you can defer the payment of benefits until the required age. You'll still get a tax deduction for your charitable gift now, and if your donation grows (as it's invested by the charity) you won't owe tax on the increase in value.

Tax Benefits

Charitable gift annuities have some tax advantages you can't get with other investments or methods of donation.

Immediate tax deduction. When you donate, you get a tax deduction—not for the entire amount you donate, but for that amount minus the expected amount you'll get back in payments over your lifetime.

Capital gains tax deferral. If you donate appreciated securities, there's another tax advantage: you won't owe capital gains tax when you make the transfer. Only some of your capital gain will be taxed (because part of the money will stay with the charity), and the tax will be spread out over all of your annuity payments.

Non-taxable income. A portion of the annuity payments aren't taxable; it is treated as the return of the principal you handed over to the charity. After you reach your statistical life expectancy, however, you'll pay tax on the payments as ordinary income.

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