What Is a Charitable Gift Annuity (CGA)?
A charitable gift annuity (CGA) is a tool that blends philanthropy with retirement income. It allows you to make a meaningful gift to a nonprofit organization while also creating a reliable stream of income for yourself or a loved one.
How a Charitable Gift Annuity Works
Unlike some charitable planning strategies that require complicated trust documents, a CGA is straightforward: it’s a contract between you and the charity.
- You make a gift.
- You contribute cash, stocks, or other assets to a qualified nonprofit organization.
- Minimums vary by charity, but often start around $10,000
- You receive fixed income for life.
- In exchange, the charity agrees to pay you (or another beneficiary you choose) a set amount every year for the rest of your life.
- Payments are based on your age at the time of the gift. The older you are, the higher the payout rate.
- Generally, CGA’s are fixed meaning the payments are level year to year.
- The charity receives the remainder.
- When you pass away, whatever is left of your gift stays with the organization to support its mission.
What to Know about the Charitable Gift Annuity
- Immediate Charitable Deduction: In engaging in a charitable gift annuity, you will most likely receive an immediate charitable deduction. The level of the deduction depends on the initial contribution, the IRS 7520 Rate, and the payout rate guaranteed by the non-profit.
- Initial Contribution: The more you put in, the more of a deduction you’ll qualify for.
- IRS 7520 Rate: This is the federal discount rate published monthly by the IRS and used in calculating the present value of future income streams. A higher 7520 rate generally increases the deduction, because it assumes the annuity payments are worth less today, leaving more for the charity on paper. Conversely, lower rates reduce the deduction.
- Payout Rate: This is the percentage of your gift the charity agrees to pay you annually. Higher payout rates reduce the charitable deduction, since more of the gift is expected to come back to you over your lifetime. Lower payout rates increase the remainder portion for charity, and therefore increase the deduction.
- Lower Rates Than Private: Because part of the value of the annuity is left designed to be left to the charity, the guaranteed rates are lower than annuities can you get without the charitable feature.
- Partially Tax-Free Income: CGA’s do pay partially tax-free income but this is not unique to CGA’s. Annuitized, non-qualified annuities pay tax-free income as a return of principal.
- Fully Taxable Income: Eventually, when the basis in the contract runs out, the payments will be fully taxable. This generally happens around life expectancy.
- Select Non-Profit Availability: CGA’s are more complicated and do contain some risk as the insurance pool is 1 (see How Insurance Works: The Law of Large Numbers – Gilbert Wealth). As such, CGA’s are typically offered by large non-profits (universities, American Heart Association, foundations, etc).
- Non-Profit Risk: It is critical to understand that the annuity is backed by the charity making the health of the non-profit critical. When you fund a CGA, the entire contribution belongs to the nonprofit immediately. This does not mean they can just spend it as states can impose similar rules as insurance companies on the non-profits use of the funds but it is important to understand.
- Multiple Lives: A CGA can be set up to pay for a single life or multiple lives. You could even set on up to pay for a grandparent and then revert to a grandchild for life.
Example
A 65-year-old contributes $100,000 to a charitable gift annuity. Based on the rates published from the American Council on Gift Annuities as of August 18, 2025 (Current Gift Annuity Rates), the suggested payout rate is 5.7% meaning the CGA will pay $5,700 per year for life.
Based on the IRS 7520 rates and mortality tables, this would result in a $29,597 tax deduction for the donor. (See below for calculation)
According to ImmediateAnnuities.com, as of August 18, 2025, an immediate annuity payout rate – the most direct comparison – is 7.88% which would guarantee a lifetime payout rate of $7,880 per year.
How the Non-Profit Benefits from the Charitable Gift Annuity?
The primary benefit for the non-profit is the remainder of the charitable gift annuity at the donor’s death. Whatever is remaining in the fund pool, becomes unrestricted usage for the charity.
However, it is uncertain how much the charity will actually receive.
If the donor dies near the beginning of the contract, they will receive more. If the donor lives a long life, they will receive less.
If investment performance is lower than expected, they will receive less. If investment performance is higher than expected, they will receive more.
Practical Access During Annuitant’s Life
- Restricted portion: The amount needed to satisfy future annuity payments is effectively “locked up” in the reserve and cannot be spent on current charitable programs.
- Excess reserves (if any): If the reserve grows more than actuarially required (say, due to investment gains), some states allow the charity to transfer the excess into general funds.
- At the donor’s death: When the annuity obligation ends, all remaining funds in the reserve are released and become fully available for charitable use.