Planning Pointer
The Charitable Gift Annuity: Give Your Way to Higher Income
Published March 2006
Mary K, 78, is quite comfortable in retirement. She has a well-balanced portfolio with both equity and income investments-particularly a fairly significant amount in certificates of deposit (CDs). Since the equity investments pay little or no dividends, she does rely on the income from the CDs for much of her cash-flow needs. Mary has some CDs coming due before the end of the year and rather than re-invest at the current 4.5% interest rate, she decides to investigate other options.
Mary has been planning to make a significant gift to Saint Rose at some point-perhaps through her will. After talking about her concerns with a member of our staff, Mary decides to contribute $20,000 from her maturing CDs to Saint Rose in exchange for a charitable gift annuity. Based on her age, the gift annuity will pay her 7.6% ($1,520) each year for the rest of her life-$620 more than the $900 ($20,000 x 4.5%) the CD would have paid.
But the results are even better than they first appear:
- $985 of Mary's annual income from the gift annuity will be treated as a tax-free return of principal for the balance of her life expectancy, making her annual income worth far more than similar fully taxable income.
- The gift entitles her to an income-tax deduction of $9,651, saving her $2,702 (in her 28% bracket). The gift annuity provides significantly more annual cash flow than a CD would.
Prudent Planning Requires Frequent Review of Investments
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