Quick overview

A Charitable Gift Annuity (CGA) is a planned-giving tool that combines a current gift to charity with a guaranteed lifetime income stream for the donor (or another named annuitant). The charity invests the remaining portion of the gift and eventually uses it to fund its programs after the annuity ends. CGAs are widely used by donors who want steady payments, a charitable income-tax deduction, and a way to support a nonprofit without keeping the assets in their estate.

(Authoritative resources: see IRS guidance on charitable contributions and split-interest gifts and the American Council on Gift Annuities for suggested payout rates.)

How a CGA works — step by step

  1. Make the gift: You transfer cash, marketable securities, or (less commonly) other assets to an eligible charity. The organization must be able to administer CGAs; many colleges, hospitals, and large nonprofits offer them.
  2. Sign the annuity agreement: The charity signs a contract agreeing to pay a fixed amount for the life of the annuitant(s). The rate typically depends on the annuitant’s age(s) and the charity’s payout schedule (many charities follow the American Council on Gift Annuities (ACGA) rate table) (ACGA).
  3. Receive payments: The charity begins periodic payments (usually annually or quarterly) that are fixed for the annuitant’s lifetime.
  4. Tax consequence: The donor receives an immediate charitable income-tax deduction equal to the gift’s value minus the present value of the annuity paid back to the donor. The IRS’s Section 7520 interest rate is used to calculate that present value for federal tax purposes.
  5. Remainder to charity: After the annuitant(s) die, the charity keeps the remaining principal to support its mission.

(For general IRS rules on charitable contributions see the IRS Topic No. 506 and Publication 526.)

Tax basics and typical tax treatment

  • Charitable deduction: Your deductible amount equals the fair market value of the gifted asset minus the present value of the annuity interest you receive. The present value calculation uses IRS valuation rules (Section 7520 rate) and tables the charity or your tax advisor will apply (IRS).
  • Taxation of payments: Each annuity payment generally contains three pieces: (1) a tax-free return of principal (for a limited period based on your calculated exclusion ratio), (2) ordinary income, and (3) capital gains income if the gift was appreciated property and the charity sold it (treatment varies). Over time the taxable mix shifts — early payments often include more tax-free return of principal until the exclusion period ends (this is complex; consult a tax professional).
  • Capital gains: Donating appreciated securities to a public charity outright can let you deduct the full market value and avoid capital gains tax. With a CGA—because you receive a benefit back—the capital gains impact depends on whether the charity sells the asset and IRS rules; you will usually not avoid all capital-gain tax when giving appreciated property into a CGA (discuss with a CPA).
  • Estate and gift tax: The portion of the gift that’s treated as a charitable remainder generally reduces your estate for estate-tax purposes, but rules vary with state law and overall estate-planning structure.

Citations: IRS Topic No. 506; IRS Publication 526; Section 7520 guidance (IRS) — readers should consult the IRS website and a tax advisor for calculations specific to their situation.

Typical rates, minimums, and eligibility

  • Minimums: Many charities set minimum gifts for CGAs (commonly $5,000–$25,000), but minimums vary by organization.
  • Minimum age: Charities commonly require annuitants to be 55–65 years old; many donors are retirees or near-retirees.
  • Payout rates: Typical ACGA suggested payout rates (used as a guideline by many charities) usually range from roughly 4% to 9% depending on the annuitant’s age (higher age = higher payout). The charity may set its own rates but often follows ACGA guidance.

For current ACGA rates and tables, see the American Council on Gift Annuities (ACGA) website.

Pros (why donors choose CGAs)

  • Predictable lifetime income: Fixed payments can help supplement Social Security, pensions, or other retirement income.
  • Immediate tax benefit: You typically receive an immediate charitable income-tax deduction (subject to AGI limits) for the remainder interest in the gift.
  • Simpler than a trust: CGAs are contracts and usually easier and cheaper to set up and administer than charitable remainder trusts.
  • Potentially favorable for moderate gifts: For donors who want both income and a charitable gift but don’t need complete flexibility of a trust, CGAs offer a straightforward option.

Cons and key risks

  • Credit risk of the charity: The annuity is unsecured. If the charity experiences financial trouble or insolvency, future payments could be reduced or stopped. Large, financially stable charities are safer choices.
  • Fixed, non-inflation-adjusted payments: Payments do not rise with inflation unless the contract specifies a cost-of-living adjustment (rare). Over decades, real purchasing power may decline.
  • Reduced legacy amount: Because you receive lifetime payments, the ultimate remainder to charity is lower than an outright gift of the same size.
  • Complex tax consequences with appreciated assets: Donating stock or real estate to a CGA raises valuation and capital-gains issues that differ from outright gifts.
  • Irrevocable: Most CGAs are irrevocable after funding; you cannot reclaim the principal.

Use cases: who should consider a CGA?

  • Retirees seeking steady supplemental income without purchasing an annuity from an insurance company.
  • Donors who want a partial income-tax deduction while supporting a favorite charity.
  • Individuals with low-basis appreciated assets who are willing to accept the CGA’s tax tradeoffs (after careful review).
  • People who want a simple plan (vs. the complexity and cost of a charitable remainder trust) and who prioritize supporting a charity after lifetime.

In my practice I’ve recommended CGAs for clients who wanted a predictable small-income stream combined with philanthropic goals and who prioritized the charity’s mission over maximizing the residual estate value.

How to evaluate an offer and choose a charity

  • Check financial strength: Review the charity’s Form 990, annual reports, and reserve policies related to charitable gift annuities. Look for well-funded reserve or pooled funds for annuity obligations.
  • Review the annuity contract: Confirm payment frequency, survivorship options, surrender provisions (rare), and whether payments are fixed for one or two lives.
  • Compare payout rates: Ask if the charity follows ACGA suggested rates; compare those to commercial annuity payouts in your age group.
  • Understand fees: Some charities charge administrative fees that reduce the remainder; ask for the detailed net math.
  • Ask about asset handling: If you plan to donate securities or complex assets, confirm how and when the charity will liquidate them and the tax consequences.

Useful internal reading: consider our deeper comparison of planned-giving vehicles like a “Charitable Remainder Trust” and guides about donating appreciated stock such as “Giving Through Stock: A How-To Guide for Donors” for tradeoffs vs. CGAs.

Example (illustrative, simplified)

  • Jane, age 75, donates $100,000 cash to a university in exchange for a lifetime CGA paying 6% annually ($6,000). Using the IRS valuation rules, the present value of the annuity might be $50,000, so her immediate charitable deduction would be approximately $50,000 (this is illustrative; your actual deduction depends on Section 7520 rate and life expectancy tables). Portions of the $6,000 may be tax-free for a number of years under the exclusion ratio; later payments may be taxable. Jane’s estate is smaller by the portion allocated to the charitable remainder.

Always run precise numbers with a tax pro.

Common mistakes and misconceptions

  • Assuming all CGA income is tax-free. It’s not; only part can be tax-free as a return of principal for a period.
  • Overlooking charity credit risk. Unlike an annuity from an insurance company backed by reserves, CGA payments depend on the charity’s ability to pay.
  • Expecting inflation protection. CGA payments are generally fixed.

Practical steps to set up a CGA

  1. Confirm the charity offers CGAs and request a written proposal showing projected payments, the charitable deduction, and estimated remainder.
  2. Review the contract with your attorney or tax advisor.
  3. Provide the gift (cash or assets) and begin receiving payments per the agreement.
  4. Report the charitable deduction on your tax return (Form 8283 for noncash gifts when applicable) and track the tax character of payments year to year.

Additional resources

  • IRS Topic No. 506: Charitable Contributions — https://www.irs.gov/taxtopics/tc506 (IRS)
  • IRS rules on valuation and Section 7520 rate — see IRS guidance on valuation of annuities and the section 7520 rate page.
  • American Council on Gift Annuities (ACGA) — for suggested payout rates and tables (ACGA).
  • National Association of Charitable Gift Planners — for best practices in charitable gift administration (NACGP).
  • Consumer Financial Protection Bureau — general guidance on charitable giving and scams.

Bottom line

Charitable Gift Annuities can be a useful tool to convert assets into a reliable lifetime income stream while supporting a nonprofit and receiving a partial charitable tax deduction. They are best-suited to donors who value a simple arrangement and steady payments, accept the charity’s credit risk, and understand the tax tradeoffs. Because CGAs involve nuanced tax rules (especially for donated securities) and long-term commitments, consult a qualified CPA or CFP® before funding a CGA.

Professional disclaimer: This article is educational and not personalized tax or legal advice. Consult a qualified tax advisor or attorney for guidance tailored to your situation.

Authoritative sources: IRS (Topic No. 506; Publication 526), American Council on Gift Annuities (ACGA), National Association of Charitable Gift Planners, and Investopedia.