Charitable Gift Annuities, Explained: Lifetime Income, a Tax Deduction, and Capital-Gains Relief in One Gift

You are sitting on stock that has tripled since you bought it, you are a few years from required minimum distributions, and every year your accountant tells you the same thing: sell the stock and you owe capital gains tax, keep it and your estate gets more concentrated. Meanwhile, you would genuinely like to support the university, food bank, or community foundation that matters to you — but writing a big check today means giving up income you might need for the next twenty years.

A charitable gift annuity, or CGA, is built exactly for that bind. You transfer cash or securities to a charity, the charity pays you (and optionally your spouse) a fixed amount every year for life, and whatever is left when the payments end stays with the charity. In exchange you get three separate tax benefits: an immediate income tax deduction, a partially tax-free income stream, and a way to spread out — or shrink — the capital gains bill on appreciated assets. Since the SECURE 2.0 Act, you can even fund one directly from your IRA.

This guide walks through how CGAs work, what the payments look like at different ages, how the tax math breaks down, and the catches that should make you pause before you sign.

What a Charitable Gift Annuity Actually Is​

A CGA is a simple contract between you and a charitable organization, not a trust and not a commercial annuity product. The mechanics:

1. You make an irrevocable transfer — typically cash, publicly traded stock, or mutual fund shares — to the charity. Most charities set a minimum gift of $10,000 to $25,000.
2. The charity agrees to pay you a fixed dollar amount every year (usually in quarterly installments) for the rest of your life. The payout rate is set at the time of the gift and never changes.
3. When the payment obligation ends, the remainder stays with the charity to support its mission.

Three common structures cover most situations:

• Single-life immediate CGA. One person receives payments starting right away.
• Two-life (joint and survivor) CGA. Payments cover you and a second person, usually a spouse, and continue until both of you have died. The payout rate is lower than a single-life annuity at the same age, because the charity expects to pay longer.
• Deferred gift annuity. You make the gift now but payments start years later — say at 65 or 70. Because the charity holds the money longer before paying out, the payout rate is higher, and your current-year deduction is larger.

A CGA is not the same as a charitable remainder trust (CRT): a CRT is a separate trust with setup costs, annual administration, and tax filings, while a CGA is a contract you sign in an afternoon. For gifts under roughly $100,000, the annuity is usually the simpler route; for larger gifts of complex assets, the trust earns its keep.

Benefit 1: An Immediate Income Tax Deduction​

The IRS treats a CGA as part charitable gift and part annuity purchase. The gift portion — the present value of what the charity is expected to keep, called the charitable remainder — is deductible as a charitable contribution in the year you make the gift.

Two details control the size of that deduction:

• Your age and the payout rate. The older you are, the shorter your life expectancy, the larger the expected remainder, and the bigger the deduction. The IRS computes the remainder using your age, the payout rate, and the Section 7520 discount rate for the month of the gift (you may use the rate for either of the two preceding months if it is higher). Higher interest rates mean a larger deduction, which is one reason CGAs have become more attractive in recent years.
• The 10 percent remainder test. The deductible remainder must be at least 10 percent of the amount you transfer. If you are very young or the payout rate is very high, the gift can fail this test and produce no deduction at all. Charities check this before accepting the gift.

The deduction is subject to the usual charitable-contribution AGI limits — generally 30 percent of adjusted gross income for gifts of appreciated property to a public charity, 60 percent for cash — with a five-year carryforward for any excess. If you take the standard deduction rather than itemizing, the income tax deduction is worth nothing to you in that year, though the other two benefits below still apply.

Benefit 2: A Partially Tax-Free Income Stream​

Here is the part most donors underestimate: a slice of every annuity check comes back to you free of income tax. Under the exclusion-ratio rules of Internal Revenue Code Section 72, each payment is divided into a tax-free return of your own principal and taxable income. The charity calculates the ratio at the outset and reports the split to you each year, typically on Form 1099-R.

A simple illustration: suppose you fund a $50,000 CGA at age 72 with a 7 percent payout rate, or $3,500 a year. Depending on your life expectancy, perhaps $1,800 of each payment is excluded as a return of principal while the remaining $1,700 is taxed as ordinary income — until you outlive your actuarial life expectancy, after which the full payment becomes ordinary income. Your after-tax yield is therefore meaningfully higher than the headline rate suggests.

Benefit 3: Capital-Gains Relief on Appreciated Assets​

Funding a CGA with appreciated stock or mutual fund shares you have held for more than a year unlocks the third benefit. Instead of selling the shares, paying capital gains tax all at once, and donating the after-tax proceeds, you transfer the shares directly:

• Part of the gain disappears. The gain attributable to the charitable-gift portion is never taxed — the same as with an outright gift of stock.
• The rest is spread over your lifetime. The gain attributable to the annuity portion is reported gradually, year by year, as part of your annuity payments, rather than in one lump.

There is one sharp edge: this installment treatment applies only when the annuitants are you and your spouse. Name a child, sibling, or anyone else as a beneficiary and the full unrealized gain becomes taxable to you in the year of the gift. Charities and advisors flag this constantly because it is the easiest way to turn a good plan into a surprise tax bill.

What the Payments Look Like: ACGA Rates by Age​

Most charities do not invent their own payout rates. They follow the suggested maximum rates published by the American Council on Gift Annuities (ACGA), a nonprofit that recalibrates the schedule as interest rates and mortality tables change. The charity may offer less than the suggested rate, but it should not offer more — the schedule is designed so that roughly half the gift remains for charity if the annuitant lives to life expectancy.

Under recent ACGA schedules, illustrative single-life immediate rates run roughly as follows: about 5 percent for a donor in the early 60s, about 6.3 percent at age 70, about 7 percent at 75, about 8.1 percent at 80, and 9 percent or more past 90. So a $100,000 gift at age 75 might pay around $7,000 a year for life, part of it tax-free, plus a deduction worth perhaps $35,000 to $45,000 depending on the Section 7520 rate. Two-life rates are lower at every age; deferred annuities are higher.

Always ask the charity for a personalized illustration at current rates before deciding. Rates move with the interest-rate environment, and the exact deduction depends on the month you give.

The Legacy IRA: Fund a CGA Straight From Your Retirement Account​

The SECURE 2.0 Act of 2022 created a genuinely new move: a one-time election letting IRA owners age 70½ or older use a qualified charitable distribution (QCD) of up to $50,000 — indexed for inflation, which puts the 2026 limit at $55,000 per person — to fund a CGA (or a charitable remainder trust). Advisors call it the Legacy IRA.

The rules are strict, so read them as a checklist:

• One time only. You get a single election in your lifetime, usable in one tax year. You can split it across more than one CGA in that year, but the total cannot exceed the limit.
• IRA assets only. The CGA must be created solely to receive the QCD and may hold nothing else.
• Payout of at least 5 percent. Some two-life illustrations at the standard ACGA rate fall below 5 percent and must be adjusted upward to qualify.
• Payments only to you or your spouse. No children, no grandchildren, no other beneficiaries.
• No charitable deduction. The distribution is excluded from your income instead, which is usually better — it lowers AGI, and for those 73 or older it counts toward your required minimum distribution.
• Direct transfer required. As with any QCD, the money must move directly from your IRA custodian to the charity. A check made out to you does not qualify.

This is especially powerful for donors who claim the standard deduction and therefore get no value from a conventional charitable deduction. The QCD-funded CGA delivers tax-free treatment through income exclusion instead, plus a lifetime payment stream a plain QCD cannot offer. Note, however, that every dollar of the annuity payments will be taxed as ordinary income — there is no tax-free exclusion-ratio portion, because you funded the gift with pre-tax dollars.

The Catches Worth Taking Seriously​

CGAs are genuinely useful, but they are not flexible, and the inflexibility cuts both ways.

The gift is irrevocable. Once you sign, the principal is gone. You cannot borrow against the annuity, cash it out in an emergency, or change the charitable beneficiary. Never fund a CGA with money you might need back.

Payments are fixed in nominal dollars. A $7,000 annual payment will still be $7,000 in twenty years, when inflation may have cut its purchasing power substantially. Younger donors feel this most; it is one argument for the deferred version or for pairing a CGA with growth assets elsewhere.

Your income depends on the charity's solvency. A CGA is backed by the charity's general assets, not by a segregated account or state guaranty fund the way a commercial annuity is. Before you sign, review the organization's audited financial statements, look at its investment policy for gift-annuity reserves, and confirm it is registered to issue CGAs in your state — several states, including New York and California, require charities to be licensed and to hold specific reserves. A small or financially shaky charity should not be your counterparty on a lifetime promise.

Rates and ages have floors. Many charities will not issue an immediate CGA to anyone under 60 or 65, and deferred annuities generally cannot begin payments before age 50 or so.

Timing matters for the deduction. Bunch the gift into a high-income year if you can — the year you sell a business, exercise options, or take a large bonus — so the deduction offsets income at your top marginal rate.

How a CGA Compares to the Alternatives​

It helps to place the CGA on a small map of competing strategies:

• Outright gift of appreciated stock. Bigger deduction, no income stream. Best when you do not need the money back.
• Commercial annuity plus separate giving. You can buy a higher payout from an insurance company and donate separately, but you lose the bundled deduction and the capital-gains installment treatment.
• Charitable remainder trust. Better for gifts well above $100,000, for real estate or other complex assets most charities will not take directly into a CGA pool, and when you want professional investment management with variable payments. Worse on cost and complexity.
• Donor-advised fund. Excellent for bunching deductions in a high-income year, but it pays no income back to you.

For the donor who wants to give, needs income, and holds appreciated securities in a taxable account, the CGA often beats every row on that list.

If You Run the Nonprofit: The Bookkeeping Side​

CGAs create accounting obligations that small nonprofits sometimes discover late. A CGA is a split-interest agreement: when the gift arrives, the charity records the assets received, records a liability for the actuarial present value of the future annuity payments, and recognizes contribution revenue for the difference. Each year the liability is remeasured as payments go out and actuarial assumptions change, with the adjustment flowing through the statement of activities.

Practical consequences follow. The annuity liability sits on your balance sheet and affects ratios lenders and grantmakers read. Payments must be tracked per annuitant, with the taxable and tax-free portions reported correctly. Reserve and registration rules vary by state, and many smaller organizations offload the whole function — investing the gift pool, cutting the checks, issuing tax forms — to a community foundation or a gift-annuity management service for a modest fee. If your organization is considering its first CGA, price that outsourcing before you promise anything to a donor; the administrative tail on a lifetime obligation is long.

Setting One Up: A Practical Checklist​

1. Confirm you are a fit. Generally 60 or older, charitably inclined, holding cash or appreciated securities you will not need back, and ideally facing a high-income or high-gains year.
2. Choose a financially solid charity that is registered to issue CGAs in your state and follows ACGA rates. Ask how the gift pool is invested and what happens to reserves.
3. Request illustrations for single-life vs. two-life and immediate vs. deferred structures, showing the payment, the deduction, and the taxable/tax-free split.
4. Decide what to contribute. Cash is simplest; appreciated securities held over a year usually produce the best combined tax result.
5. Coordinate with your CPA on the 10 percent remainder test, AGI limits, carryforward planning, and — if you are 70½ or older — whether the one-time QCD election beats a taxable-account gift.
6. Execute the agreement and fund it with a direct transfer. Keep the contract, the illustration, and each year's 1099-R with your tax records.

Done right, both sides can honestly say they got the better deal: you lock in income for life plus three layers of tax benefit, and the charity eventually receives a gift it can count on. Just remember the key word is irrevocable — model the decision against your full retirement picture before you sign.

Simplify Your Financial Management​

As you plan charitable giving alongside retirement income, keeping clean records of deductions, annuity payments, and cost basis is what turns a good strategy into actual tax savings. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.