December 3, 2019

Considering a Charitable Gift Annuity? Act Now.

Carmen Jeschke

Safety, security and an income for life. These attributes have made annuities an investment mainstay going back to ancient Rome. Add the ability to give to your favorite charity and receive a partial tax deduction and you can see why charitable gift annuities (CGAs) are among the most popular planned gifts.

Annuity rates to drop in 2020

Madison Community Foundation (MCF), like many charities, follows the suggested maximum gift annuity rates issued by the American Council on Gift Annuities (ACGA). The ACGA recently announced that CGA rates will decrease in 2020. That means donors starting CGAs after January 1 will receive less income. If you’ve been considering a CGA, establishing one before the end of December gives you the opportunity to take advantage of 2019’s higher rates.

* Minimum age for establishing a CGA with MCF.

If you’re unfamiliar with this popular investment vehicle, this fact sheet can give you an overview of how CGAs work and what you need to establish one.

Calculating the annuity payment

The size of your annuity payment is based on multiple factors including:

• Your life expectancy,
• The amount of the gift, and
• Interest rates.

The ACGA rates aim to produce a target gift for the charity of 50% of the contributed funds after your death.

Generally, the older you are and the lower the annuity rate when you establish the CGA, the larger the charitable tax deduction you can take. Likewise, a greater portion of your annual payments will be tax-free.

To illustrate how the rate change will affect CGAs, let’s look at Cliff, a 72-year-old who wants to establish a CGA for himself and his wife Gertie, who is 69. If Cliff establishes the CGA with a $10,000 cash gift in 2019, he would receive an annuity rate of 5%. Cliff’s CGA would generate an annual annuity payout of $500 for the rest of his and Gertie’s lives, $372 of which would be tax-free.

However, if Cliff waits until January 1 to establish his CGA, he would receive an annuity rate of 4.6%. The CGA’s annual annuity payout would be $460, $342 of which is tax-free.

Benefits of an annuity with MCF

A CGA is irrevocable; annuity payments cannot be changed nor are they adjusted for inflation. Therefore, creating a CGA with an established, financially secure organization like MCF is essential. Your gift is backed by all of MCF’s $206 million in assets and will continue throughout your life, regardless of how the annuity’s investments perform.

After your death, the remainder of the CGA’s funds become part of your designated charity’s endowment fund at MCF, providing it with a permanent source of income.

Consider a CGA this year to maximize your benefits

For donors 60 years or older who are able to make the minimum required contribution of $10,000, charitable gift annuities are more attractive than ever. In this season of giving, consider gifting to your favorite charity by establishing a CGA with MCF before December 31, 2019.