Charitable Gift Annuities: Which Funding Option Is Best for Your Donor?

Lynn M Gaumer, JD

Lynn M. Gaumer, J.D., is back this week to help you help your donors pick the CGA funding option that is best for them.

As I mentioned in last week’s blog, it’s a great time to talk with your donors about charitable gift annuities. After all, there’s lots to talk about—like tax benefits, increased retirement income, higher gift annuity rates, and most of all, a gift to your organization. And now you can add to that list and discuss an additional funding option.

Donors can fund a gift annuity with traditional assets such as cash or appreciated property or, if they are 70½ or older, they can now use a qualified charitable distribution (QCD) from their IRA. 

If your donors have questions about their funding options, see my chart below. It gives an easy-to-read, side-by-side comparison you can share with your donors.

Now let’s look at the funding options from a tax perspective. Whether your donor wishes to fund a gift annuity with traditional assets or with a qualified charitable distribution may, in part, be a financial decision. To determine what is best for the donor from a tax perspective, a variety of variables will come into play like the donor’s tax rate, whether they itemize their deductions, the gift amount, age of donor(s) and the charitable midterm federal rate (CMFR). And even then, the tax benefits of one funding option over the other may be minimal.

Encourage our donors to consult with a qualified tax advisor or financial planner to determine the best strategy for their individual circumstances and charitable giving goals. They can provide personalized advice and help maximize the tax benefits. Here are some general observations:

Funding a CGA With a Qualified Charitable Distribution

Going the QCD route may make more sense when:

  1. The donor has a required minimum distribution (RMD) equal to or greater than the funding amount.
  2. The donor takes the standard deduction or has reached their percentage of AGI limit on charitable deductions.

Funding a CGA With Cash or Appreciated Assets

These options may make more sense when:

  1. The donor has long-term-gain property that has a cost basis of lower than 50% and itemizes their deductions.
  2. The donor has either taken their RMD for the year or is not yet 73 and therefore not required to take an RMD. In this case, the donor should wait until they can use their gift to fulfill their RMD.

Next Steps

If your organization offers gift annuities, now is the time to discuss their many benefits. And don’t forget that gift annuity rates are higher now than they have been in over a decade. If your organization doesn’t offer gift annuities, now’s the perfect time to either create a CGA program or work with a third party like the National Gift Annuity Foundation to offer them.

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