A charitable gift annuity is a contract in which you give cash or assets to a qualified 501(c)(3) charity and, in return, the charity pays you a fixed dollar amount for the rest of your life. Part of the transfer counts as a deductible charitable gift; the rest funds the payments you’ll collect. The arrangement is irrevocable, the payment never changes, and whatever remains when the last annuitant dies belongs to the charity’s mission.
How the Contract Works
You sign directly with the charity. There’s no separate trust or legal entity holding the money. The charity takes full ownership of what you contribute and can invest or spend it however it chooses, subject only to its promise to keep sending your checks. Those checks are backed by the organization’s entire pool of assets, not just your gift, which means a bad investment year for the charity doesn’t change your payment. It also means a truly troubled charity is a problem you can’t walk away from.
Once you sign and transfer the assets, you cannot reclaim them, change the payment terms, or cancel. That finality is the price of the tax treatment.
What You’ll Be Paid
Most charities follow the suggested maximum payout rates published by the American Council on Gift Annuities. The rates rise with age because older donors have shorter life expectancies, so the charity can pay a higher annual percentage while still preserving roughly 50% of the original gift for its mission.1American Council on Gift Annuities. Current Gift Annuity Rates
Under the ACGA schedule effective January 1, 2024, single-life rates run:1American Council on Gift Annuities. Current Gift Annuity Rates
- Age 65: 5.7%
- Age 70: 6.3%
- Age 75: 7.0%
- Age 80: 8.1%
- Age 85: 9.1%
A 75-year-old who gives $100,000 collects $7,000 a year for life. Two-life annuities, paying until the second annuitant dies, use lower rates because the expected payout period is longer.
Most charities set a minimum age of 55 for immediate payments and a minimum gift somewhere between $5,000 and $25,000, though larger institutions often start higher. Payment schedules are usually quarterly, with monthly, semiannual, or annual options available at many charities.
The Charitable Deduction You Can Claim
The IRS treats the transaction as part gift, part purchase of an annuity. Your deduction equals what you transferred minus the present value of the payments you’re expected to receive over your lifetime. That present value uses the IRS Section 7520 rate, which is 120% of the federal midterm rate rounded to the nearest two-tenths of a percent.2Office of the Law Revision Counsel. 26 USC 7520 – Valuation Tables
The rate changes monthly and has run between 4.6% and 4.8% in early 2026.3Internal Revenue Service. Section 7520 Interest Rates A higher rate shrinks the present value of the payments and therefore enlarges the gift portion, so you get a bigger deduction. You may use the rate from the month of the gift or from either of the two preceding months, whichever helps you most.2Office of the Law Revision Counsel. 26 USC 7520 – Valuation Tables
To claim the deduction you have to itemize. The charitable portion of a cash-funded annuity is subject to the standard cash-contribution ceiling as a percentage of AGI; appreciated property falls under the lower capital-gain-property ceiling. Anything you can’t use in the gift year carries forward for up to five additional years.4Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
One rule catches donors off guard: the charitable deduction must be at least 10% of the amount transferred. The ACGA rate schedule is calibrated to clear that floor for donors 50 and older under normal conditions, but if you’re younger or the 7520 rate falls unusually low, the charity should trim your payout rate to keep the deduction qualifying.1American Council on Gift Annuities. Current Gift Annuity Rates
How the Payments Themselves Are Taxed
Each payment is split into components under Section 72 of the Internal Revenue Code.5Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts For a cash-funded annuity, part of each check is a tax-free return of your investment in the contract (the amount you gave minus the charitable deduction), and the rest is ordinary income.
The tax-free portion runs out. It’s calculated to spread your investment evenly across your actuarial life expectancy, so once you’ve recovered your full basis, every dollar of every payment becomes ordinary income. The check stays the same size; the tax bill goes up. The charity reports the breakdown to you each year on Form 1099-R.6Internal Revenue Service. Instructions for Forms 1099-R and 5498
Funding With Appreciated Securities
Using long-term appreciated stock or fund shares adds a layer of benefit. The capital gain tied to the charitable portion of the transfer is never taxed, just as with an outright stock donation. The gain tied to the annuity portion is not taxed all at once either. It’s spread as a third component of each payment over your life expectancy and taxed at long-term capital gains rates. Each check then has three layers: tax-free basis, capital gain, and ordinary income. After your life expectancy is reached, the basis and capital gain layers disappear and the whole payment is ordinary income. Any unreported gain remaining at your death is never taxed, because by then it belongs to the charity.
Watch the naming rules. If someone other than you is the annuitant, the entire capital gain on the annuity portion is recognized in the year of the gift instead of spread out, which can produce a large and surprising tax bill.
Deferred and Flexible Gift Annuities
A deferred gift annuity lets you contribute now and postpone payments to a later date, often retirement. The charity invests the gift longer before payments start, so the eventual payout rate is higher. You still take the charitable deduction in the year of the gift, and because deferring the income lowers its present value, the deduction is larger than for an equivalent immediate annuity. The five-year carryforward still applies.
A flexible deferred version adds a movable start date. You pick a target year but keep the right to begin earlier (at a reduced payment) or later (at a larger one), with the deferral period at least one year from signing. If you never need the income, you can donate the contract back to the charity and take another deduction then.
Funding a Gift Annuity From Your IRA
SECURE 2.0 opened a route for donors 70½ and older to fund a charitable gift annuity with a qualified charitable distribution from an IRA. In 2026 the one-time limit is $55,000 per person, and it counts against the overall annual QCD cap of $111,000. This is a lifetime election, available once.
The tax treatment is different from a standard CGA. Because the IRA money was never taxed on the way in, there’s no charitable deduction. The trade-off: the QCD isn’t included in your taxable income when it leaves the IRA, and it can satisfy part of your required minimum distribution without lifting your AGI. Every annuity payment you later receive, however, is fully taxable as ordinary income. No tax-free basis component, no capital gain spreading, because your investment in the contract from a tax perspective is zero.
The annuity has to pay at least 5%, and the recipient must be a public charity, not a donor-advised fund or private foundation. This works best if you have a large IRA, are already taking RMDs, and want to redirect some of that money without inflating your income.
Setting Up the Agreement
Before contacting the charity, gather the assets you plan to transfer, the cost basis and acquisition date for any non-cash assets, and the full legal names and dates of birth of everyone who will receive payments. Ages set the payout rate.
The charity provides an application and a disclosure statement that lays out the payment amount, schedule, and tax consequences. Once assets are transferred and both sides sign, the charity issues a written acknowledgment. Federal tax law requires this document for any contribution of $250 or more, and it must state the amount of cash or describe the property, along with a good-faith estimate of the value of the annuity payments you’ll receive.7Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts Keep it. Without it, the IRS can disallow the entire deduction.
Risks You Should Weigh Before Signing
The payment is only as reliable as the charity behind it. A CGA is not a commercial annuity and is not backed by any state guaranty fund. If the issuing charity becomes insolvent, you become a general unsecured creditor. There is no federal insurance program.
About 14 states require charities to register with a state insurance or securities regulator before issuing gift annuities, and some of those states set minimum reserve levels. Many states impose no such requirements, and even the regulated states apply lighter oversight than commercial insurers face.
Due diligence is on you. Before signing, look at the charity’s audited financials, the size of its endowment relative to its outstanding annuity obligations, and how long it has been running a gift annuity program. Large, established organizations with diversified revenue carry meaningfully lower risk than a small nonprofit with a handful of contracts. Because the arrangement is irrevocable, doubts about the charity’s finances after you sign are doubts you have to live with.
Naming a Non-Spouse Annuitant
You can set up a CGA to pay one annuitant or two. Naming your spouse as the second annuitant generally raises no gift tax issue because of the unlimited marital deduction. Naming anyone else, such as an adult child or a sibling, is a taxable gift equal to the present value of the payments that person will receive. The annual exclusion ($19,000 per recipient in 2026) covers part of it, and the lifetime gift tax exemption absorbs the rest for most donors, but a gift tax return has to be filed to report it.