Charitable Gift Annuity (CGA): How to Turn Your Donation into a 6-9% Lifetime Pension
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Result: The CGA provides 75% more annual income and an immediate $15k tax refund.
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Charitable Gift Annuity (CGA): How to Turn Your Donation into a 6-9% Lifetime Pension
COACHING POINTS
- The Concept: A CGA is a simple contract: You give a charity a lump sum (e.g., $100,000), and they promise to pay you a fixed monthly income for life. The payout rate is often significantly higher than CD or Bond yields because it includes a return of your own principal.
- The “Payout” Advantage: Because you are older, the charity can offer high rates (e.g., 6.8% for a 75-year-old). This beats commercial annuities because charities are not profit-driven insurance companies—they just need to keep the “residual” (usually 50%).
- The Tax Double-Play: You get an immediate income tax deduction for the “charitable” portion of the gift (usually 30-50%). Plus, a large portion of your annual income stream is tax-free “return of principal.”
You want to leave a legacy, but you also worry about outliving your money. The Charitable Gift Annuity (CGA) solves both. It transforms a “Gift” into an “Investment.” Instead of writing a check and getting nothing back but a thank-you note, you get a contract that guarantees you a paycheck until the day you die, backed by the full assets of the charity.
The “ACGA Rate” Math
The American Council on Gift Annuities (ACGA) sets suggested rates.
- Age 70: 6.3% Payout Rate.
- Age 75: 7.0% Payout Rate.
- Age 80: 8.1% Payout Rate.
- Comparison: A 10-Year Treasury yields ~4%. A CGA effectively doubles your cash flow, partially tax-free. Authority: ACGA 2024 Rates
What-If Scenario: $100,000 Stock Donation (Age 75)
Assumptions: Stock Cost Basis $20k (Highly Appreciated). 35% Tax Bracket.
| Metric | Sell Stock & Buy Bond | CGA Strategy |
|---|---|---|
| Upfront Tax Deduction | $0 | ~$45,000 (Saved ~$15k tax) |
| Capital Gains Tax | ~$15,000 (Paid Now) | $0 (Spread over life) |
| Annual Income | $4,000 (4% on net proceeds) | $7,000 (7.0% Fixed) |
Visualizing the Income Gap
*Figure 1: Annual Cash Flow. The Green bar (CGA) significantly outperforms the Red bar (Bond) due to the higher payout rate and tax-free portion.*
Execution Protocol
1
Choose a Strong Charity
A CGA is an unsecured promise. If the charity goes bankrupt, your payments stop. Stick to large, established institutions (Universities, National Hospitals, Major NGOs) with billions in endowment assets.
A CGA is an unsecured promise. If the charity goes bankrupt, your payments stop. Stick to large, established institutions (Universities, National Hospitals, Major NGOs) with billions in endowment assets.
2
Fund with “Appreciated” Assets
Don’t use cash. Use your lowest-basis stock (e.g., that Amazon stock you bought in 2005). You avoid the immediate capital gains tax hit and turn a low-yielding stock into a high-yielding bond.
Don’t use cash. Use your lowest-basis stock (e.g., that Amazon stock you bought in 2005). You avoid the immediate capital gains tax hit and turn a low-yielding stock into a high-yielding bond.
3
Select “Two-Life” Option
If married, always choose a “Two-Life” annuity. The rate will be slightly lower (e.g., 6.3% instead of 7.0%), but it ensures the surviving spouse continues to receive 100% of the income until the second death.
If married, always choose a “Two-Life” annuity. The rate will be slightly lower (e.g., 6.3% instead of 7.0%), but it ensures the surviving spouse continues to receive 100% of the income until the second death.
COACHING DIRECTIVE
- Do This: If you are over 70, hold appreciated stock, and prioritize “Guaranteed Income” over leaving a large lump sum to heirs.
- Avoid This: If you are under 60 (rates are too low) or if you need access to the principal for emergencies. A CGA is irrevocable; you cannot get the lump sum back.
Frequently Asked Questions
What is a Charitable Gift Annuity (CGA)?
A CGA is a contract between a donor and a charity. You transfer cash or securities to the charity, and in exchange, the charity agrees to pay you (and/or a spouse) a fixed income for life. The payout rate is determined by your age at the time of the gift.
How is this different from a regular annuity?
Two main differences: 1) Tax Deduction. You get an immediate income tax deduction for the ‘charitable portion’ of your gift. 2) Capital Gains. If you fund it with appreciated stock, you spread the capital gains tax over your life expectancy instead of paying it all at once.
What happens to the money when I die?
The payments stop (unless it’s a joint life policy), and the remaining principal goes fully to the charity to support their mission. This is the ‘Charitable Gift’ component. You are trading the principal legacy for lifetime income + tax benefits.
Disclaimer: CGA payments are backed by the charity’s assets, not by a state guarantee fund. Tax deductions depend on the Section 7520 rate. Consult a tax professional.
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