To set up a charitable gift annuity, you make an irrevocable donation to a nonprofit organization, and in return, that organization contractually agrees to pay you (or another beneficiary) a fixed income stream for life. The process is simpler than most planned giving arrangements, typically involving a straightforward contract rather than a separate legal entity. Here’s what the setup looks like from start to finish.
How a Charitable Gift Annuity Works
A charitable gift annuity (CGA) is a contract between you and a single charity. You transfer cash or assets to the organization, and the charity promises to make fixed payments to you (or up to two beneficiaries) for the rest of your life. When you pass away, whatever remains from your original gift stays with the charity to support its mission.
The payments are backed by the charity’s general assets, not a separate investment account. That makes choosing a financially stable organization important, since your income depends on the charity’s long-term ability to honor the contract. Most major universities, hospitals, community foundations, and national nonprofits offer gift annuity programs.
Steps to Set One Up
The setup process is straightforward compared to other planned giving tools. Most charities that offer CGAs have a dedicated planned giving office that handles the paperwork.
- Contact the charity’s planned giving office. Not every nonprofit offers gift annuities. Start by confirming the organization you want to support has a program and ask about its minimum gift amount. Minimums vary by charity but commonly range from $5,000 to $25,000.
- Request a personalized illustration. The charity will run the numbers based on your age, the gift amount, and the type of asset you’re contributing. This illustration shows your annuity rate, annual payment amount, the estimated charitable tax deduction, and the tax breakdown of each payment.
- Choose your payment structure. You can start payments immediately or defer them to a future date (a deferred gift annuity). Deferring payments results in a higher payout rate when they eventually begin and a larger upfront tax deduction. You’ll also decide on payment frequency: quarterly, semiannually, or annually.
- Sign the contract and transfer assets. Once you agree to the terms, you sign a gift annuity agreement. If you’re funding with cash, you write a check or initiate a wire transfer. If you’re using appreciated securities, you transfer shares directly to the charity’s brokerage account.
- Receive confirmation and tax documentation. The charity provides a gift receipt for the charitable portion of your transfer. At tax time, you’ll receive a Form 1099-R detailing how your annuity payments should be reported.
The entire process often takes just a few weeks. The contract itself is simple, especially compared to alternatives like a charitable remainder trust, which requires document drafting, appraisals, and ongoing administrative fees.
What Determines Your Payout Rate
Most charities follow suggested maximum rates published by the American Council on Gift Annuities (ACGA). These rates are based on your age at the time of the gift, with older donors receiving higher rates because the charity expects to make payments over a shorter period.
As of the rate schedule effective January 1, 2024, here are some examples for a single-life annuity:
- Age 65: 5.7%
- Age 70: 6.3%
- Age 75: 7.0%
- Age 80: 8.1%
- Age 85: 9.1%
- Age 90+: 10.1% (the cap for single-life annuities)
On a $100,000 gift at age 75, that 7.0% rate would mean $7,000 per year for life. Two-life annuities, which cover a second beneficiary like a spouse, use slightly lower rates (capped at 9.9% for those over 90). The charity you choose may offer rates at or below the ACGA maximums but generally won’t exceed them.
Tax Benefits of a Gift Annuity
A CGA provides three potential tax advantages, which together are a big part of why donors use them.
Immediate charitable deduction. If you itemize deductions, you can deduct the portion of your gift that exceeds the present value of your future annuity payments. The exact deduction depends on your age, the number of beneficiaries, the annuity rate, and the IRS discount rate in effect at the time of the gift. The charity’s illustration will calculate this for you. To qualify for a deduction, the charitable portion generally needs to exceed 10% of the amount transferred.
Reduced capital gains on appreciated assets. If you fund the annuity with stock or other property that has increased in value since you bought it, you can spread the capital gains tax over the expected payment period rather than recognizing it all at once. This is a meaningful benefit if you hold highly appreciated securities you’d otherwise face a large tax bill to sell.
Partially tax-free payments. Each annuity payment is split into three components for tax purposes: a portion treated as a tax-free return of your original investment, a portion taxed as capital gain (if you funded with appreciated property), and a portion taxed as ordinary income. Over time, after your original investment is fully returned, all payments become ordinary income. The charity’s annual 1099-R form breaks this out for you.
Funding With IRA Assets
If you’re 70½ or older, you can use a qualified charitable distribution (QCD) from your IRA to fund a charitable gift annuity. This is a one-time election with a cap of $55,000 for 2026. The transfer counts toward your required minimum distribution for the year but isn’t included in your taxable income, which can be a significant advantage if you don’t need all of your RMD for living expenses.
There’s an important trade-off: payments from a CGA funded with IRA assets are fully taxable as ordinary income, and you don’t receive an upfront charitable deduction. The benefit is getting money out of your IRA in a tax-efficient way while locking in a lifetime income stream. This option works best for people who would otherwise be making QCDs to charity anyway and want some of that giving to generate income back to them.
What You Can Donate
Cash and publicly traded securities are the most common and simplest assets to use. The charity can value them immediately and issue your contract without delay.
Some organizations also accept real estate or other non-liquid assets, but these gifts are more complex. They typically require approval by the charity’s gift acceptance committee and may involve appraisals and additional due diligence. If you want to fund a CGA with something other than cash or marketable securities, raise it with the planned giving office early in the conversation.
Immediate vs. Deferred Gift Annuities
With an immediate gift annuity, payments begin within one year of your gift, often within the first quarter. This is the most popular option for retirees who want income now.
A deferred gift annuity lets you make the gift today but postpone payments to a future date you choose, sometimes years or even decades later. The charity invests the funds in the meantime, so your eventual payout rate will be higher than if you’d started payments right away. You still receive the tax deduction in the year you make the gift. This structure appeals to people in their working years who want to lock in a future income stream for retirement while getting a current tax benefit.
Who Should Consider a Gift Annuity
CGAs work best for donors who are at least in their mid-60s or older, want reliable fixed income, and have a strong connection to a specific charity. The payout rates become meaningfully attractive in the 70s and beyond. Younger donors can still set one up, but the rates are lower (4% to 5% range for people in their 50s), and the funds are irrevocably gone, so it makes less sense unless you’re using the deferred structure.
A CGA is also simpler and cheaper to establish than a charitable remainder trust. A CRT offers more flexibility (variable payouts, the ability to fund with unusual assets like real estate or closely held stock, and the option to name multiple charities), but it requires legal drafting, its own tax return, and ongoing administration. If your primary goal is a straightforward income stream from a gift to one charity, a gift annuity accomplishes that with far less paperwork and no ongoing legal costs.