If you like the idea of guaranteed income in retirement and are charitably inclined, you may want to give charitable gift annuities a look.
A charitable gift annuity is a contract between you and a charity, often your alma mater’s foundation. You can donate cash, securities or other assets to the charity and get a charitable tax deduction up front. The institution invests the money and returns some of it to you—and up to one beneficiary—in fixed monthly payments for the rest of your life.
Effective this year, retirees who are 70½ or older have the option of making a one-time donation of up to $50,000 from their traditional individual retirement accounts (IRAs) to a chari-table gift annuity. In that case, the contribution isn’t tax-deductible, but the distribution will be tax-free. Once you reach the age at which you’re required to take minimum distributions from your IRA—73 this year, increasing to 75 in 2033—the contribution counts toward that required minimum distribution, which would otherwise be taxed as ordinary income.
Any funds remaining after you die will go to the charity. That aspect of charitable gift annuities makes them more palatable to retirees than traditional annuities, says Bryan Clontz, president and founder of Charitable Solutions LLC, a charitable-giving consulting firm. If you die early, your remaining funds will benefit a cause you’re passionate about, he says.
Because a portion of your investment will go to the charity, the payout from a charitable gift annuity will be lower than one from an immediate annuity, Clontz says. Most charities use a payout rate calculated by the American Council on Gift Annuities, which is reset periodically based on rates for the 10-year Treasury note.
Because a charitable gift annuity is a long-term contract, you’ll want to check out the finances of the charity before you invest your money. That information is usually available on the charity’s website.
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