Ask Kip: How to Donate to Charity and Get Income in Return

By David Rodeck
From Kiplinger’s Money Power

Q: I’ve been thinking of making a sizable donation to charity, but I’m a bit worried about giving away money I might need in retirement. A Charitable Gift Annuity might be my solution. What is the process?

A: A Charitable Gift Annuity can generate retirement income for you from assets you donate to the charity. The charity will set up an annuity contract after you have made a lump sum contribution.

“It is like getting a retirement pension,” said Patrick Simasko (an elder law lawyer in Mount Clemens). They’ll give you a steady, fixed income stream throughout your entire life. Anything left over after your death goes to the charity .”

The amount of income you receive depends on your age, how large your donation is, and the type of charity.

Bruce Tannahill is director of business and estate planning at MassMutual. He says charities usually pay the same rates as the American Council of Gift Annuities. He says that this is a way for charities to compete for donations based on the services they provide as charities, and not how much they charge for annuities. For example, if you’re 65, the current rate is 4.2 percent, and a $100,000 donation generates $4,200 in annual income for the rest of your life.

In order to compensate for the loss of annuity income, IRS provides an upfront deduction equal to the present value estimated by the IRS. This is the amount that will cover all missed payments during your lifetime. A tax advisor or charity can determine the amount of the deduction you will need before you donate. However, don’t withdraw money from retirement accounts as it counts as income and the tax due on that gift.

Simasko states that charitable gift annuities can be created quickly and easily. The charity will provide you with a contract, which you must complete. Once the contract is completed you can transfer your assets. That’s it. You do not need to hire a lawyer

This simplicity is at the expense of flexibility. This annuity lacks inflation protection. Once you have set it up, your money is non-refundable and you cannot change the annual payments. Gift annuities must only be offered by one charity. According to Tannahill, they are usually only available at large and established charities.

(David Rodeck contributes to Kiplinger’s Retirement Report. For more on this and similar money topics, visit Kiplinger.com. )

(c)2022 The Kiplinger Washington Editors, Inc. Distribution by Tribune Content Agency, LLC.

The Epoch Time Copyright (c), 2022 All views and opinions are the author’s. These statements are intended for informational purposes only. They should not be taken as an offer or recommendation. The Epoch Times is not a source of investment, tax or legal advice, nor does it provide financial planning, estate planning, and other personal finance advice. The Epoch Times is not responsible for any errors or delays in the information.