Just when you thought you understood annuities, what's a "charitable" gift annuity?

Jean Larsen

Legacy Endowment Community Foundation

Many people have heard about annuities, a tool in a financial planner’s or insurance agent’s toolbox, often a recommended and essential component of retirement planning. You sock away a dollar amount into an annuity and it has a pay-out rate for you which varies depending on your age, the annuity’s type and whether the annuity’s pay-out is variable or fixed. An annuity can create a steady and rather predictable income. So far, so good.

Commercial annuities are issued by insurance companies. When the payments eventually end, the insurance company pockets any value remaining in your annuity. A charitable gift annuity is issued by a charity without commissions and usually pays a fixed rate with a portion coming free of income tax.

Did I mention that most CGAs also provide an income tax deduction and when payments end the residual funds an endowment to support a charitable cause you select in perpetuity? A CGA is highly customizable to you and your family needs, offering protection, sustainability, growth, and generous pay-outs. Plus, there’s that proverbial “cherry on top” for beloved charities afterwards.

Congress recently passed new, beneficial legislation for individuals 70.5 years or older allowing a $50,000 IRA distribution to become a qualifying charitable distribution if made directly from the IRA’s trustee – think Schwab or Fidelity – to a community foundation to set-up a CGA for the individual and/or their spouse.

Instead of $50,000 being recognized as a lump sum of income for the current tax year, you and/or your spouse receive quarterly distributions from that $50,000, spread out at a great rate for your lifetimes with the CGA’s remaining balance becoming a permanent endowment, continuing to do good for community nonprofits in the form of annual grants.

If you already know the benefits of having a traditional annuity and are considering the possibility of adding more to your financial planning line-up, you may want to consider a charitable gift annuity. It still has all the great pros of commercial annuities that pay a permanent income, but it can also create a charitable plan to help your community and/or your favorite charities long into the future.

The rate of the payments is determined by age and number of annuitants – one or two. Benefits of a CGA include: an income stream for the rest of your life with the payments guaranteed by the charity; potential tax deductions, based on your life expectancy and the anticipated income stream; possibility that a portion of the income stream will be tax-free; ability of donating many types of assets: cash, securities plus personal property; reduced or eliminated capital gains tax liability for gifts of appreciated securities and personal property and supporting one or more organizations you care about.

Legacy Endowment is North County’s commission and advisory fee free resource for promoting quality of life and grant funding to support a thriving region with unique community needs. As one of few regional organizations able to offer CGA benefits, the foundation is positioned to maximize an individual's top interests, deliver tax advantages and extend philanthropic reach into the future. The foundation can meet with people and suggest a number of ways they can receive cash distributions while helping causes they believe in. CGA’s are a way to get paid now and pay it forward in the future.

Jean Larsen is executive director of Legacy Endowment Community Foundation.