Charitable Annuities - Income for Life Plus Tax Breaks

Charitable organizations are only too glad and willing to give you money if you render them some help. That's right, they will give YOU money.

This is familiarly known as charitable annuities and it is worthwhile to understand how they operates. Assuming you make a single contribution, then depending on that amount of your contribution, your age and the prevailing rates of interest, you will receive a set income lifelong form the charity.

Most every major U.S. charity offers charitable annuities with yields set on yearly basis by the American Council on Gift Annuities. The rates are usually modest and the income while attractive is usually secondary for the donor. It is essential that the donor want to benefit the charity as their priority.

As stated earlier, the charitable annuity's returns differ according to your age as would be the same with commercial immediate annuities. As a part of your charitable annuity income will be deemed by the IRS as a return on your principal amount, it follows that part of your annual income will have no tax liability.

Additionally, you get a deduction when you make your charitable annuity gift. You cannot deduct your entire gift because you will be receiving benefits (the lifelong income) in return. Here is a recent (but not the most current) schedule of deductions from charitable annuities based on age:

Age Payout Rate Deduction as % of gift

65 6.0 34.2

70 6.5 38.4

75 7.1 43.4

80 8.0 48.3

85 9.5 51.9

90 and over 11.3

Please know that the payment rates on charitable annuities shown in the table are updated on a yearly basis by the American Council on Gift Annuities in Dallas.

In the event you have any charitable plans and desire to retain income out of your donation, you can surely think of charitable annuities as a good solution. It is not necessary that your donation be cash. You can even donate appreciated securities or real estate and thereby avoid capital gains tax. In fact, most charitable annuities are funded with such assets as the donor gets additional benefits in this manner. Also not one other beneficial aspect of charitable annuities -- because you get a significant tax deduction which you may not be able to use in one year (IRS has limits), you may find that the income you receive the first few years if sheltered by your tax deduction.