Solutions

Gift annuity offers tax break and retirement income

Donor-advised funds and qualified charitable distributions have grabbed the spotlight for charitable giving under the new tax law, and for many people, those giving vehicles may work best. But that doesn’t necessarily mean ruling out other ways to give.

For some donors, a charitable gift annuity could be a way to meet charitable goals and ensure a stream of guaranteed income in retirement. “A gift annuity may not be a well-known tool, but it can be a wonderful fit, particularly for seniors,” says Jim Soft, planned giving specialist at the Yellowstone Boys and Girls Ranch Foundation, in Billings, Mont.

A charitable gift annuity is a contract between a donor and a charity. In return for your irrevocable gift to the charity, you get a charitable deduction in the year of the gift, plus a lifetime stream of income. You can donate cash, appreciated securities or other assets. An annuity works well for a retiree who has charitable intent but may be worried about retirement finances, says Anne Bucciarelli, a director in the wealth strategies group at AB Bernstein. You generally don’t pay fees to set a gift annuity up or maintain it.

To benefit tax-wise, you need to itemize. Otherwise, you won’t be able to use your deduction. You get an immediate charitable tax deduction in the year of your gift, usually between 25 and 55 percent of the amount you transfer to charity. With a cash donation, your annuity income typically will be part ordinary income and part tax-free return of principal.

For appreciated securities, you avoid much of the capital-gains liability upfront, and the rest is spread over your payments. Each January, your charity issues you a 1099R form detailing the tax liabilities on the payments, Soft says. You also should check with your individual charity for details.

Read the full story at Kiplinger.
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