Charitable Gift Annuity
DEAR TRUST OFFICER:
What is a “charitable gift annuity” and why am I seeing so many more pitches for it? — POTENTIAL PHILANTHROPIST
DEAR POTENTIAL:
The charitable gift annuity is a transfer of a significant sum to a charity in exchange for an income for life. The initial amount of the annuity varies with the age of the donor and market conditions, but once set the payouts do not change.
The reason you are seeing so many more pitches for this planning strategy is that the SECURE Act 2.0 added an important tweak. A transfer to a charitable gift annuity will qualify as a Required Minimum Distribution from an IRA. A lifetime cap of $50,000 applies to such transfers, and the payout rate must be at least 5%. The cap is indexed for inflation, and it goes to $53,000 in 2024.
If a husband and wife each have IRAs, each may make a $50,000 transfer. The annuity can be continued for both lives, but that will lower the monthly payments.
Payouts from IRA gift annuities are taxed as ordinary income. Those who are 70 ½ or older are eligible for this tax strategy. You should consult with your tax advisors before making any decisions that can’t be changed.
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