A Charitable Gift Annuity is a contractual agreement between a donor and a nonprofit organization. The donor gives the non-profit a lump sum of money for which they agree to pay the donor an income as long as the donor lives. When the donor passes, any remaining money belongs to the charity.
Charitable Gift Annuities have valuable benefit for the donor as well as the charity. For example, someone age 65 who purchases a $50,000 charitable annuity will receive 5.5% annually: a guaranteed income of $2,750 per year. For Montanans, an additional Montana Tax Credit can be utilized.
To put this into dollars, we can estimate that a $50,000 charitable annuity for a 65-year-old single person would result in a $13,332 immediate charitable deduction. A portion of the donor’s payment is considered a tax-free return of their donation. Applying the American Council on Gift annuities rates, $1,842 of the annual payment is a tax-free return of principal and $908 is taxable as ordinary income.