Our writers and editors used an in-house natural language generation platform to assist with portions of this article, allowing them to focus on adding information that is uniquely helpful. The article was reviewed, fact-checked and edited by our editorial staff prior to publication.

For many people, charitable giving often involves writing a check or donating online. But what if there was a way to weave your generosity into your retirement plan while generating income for yourself at the same time?

Charitable gift annuities (CGAs) offer a strategic approach to philanthropy, allowing you to support your favorite nonprofit while securing a guaranteed income stream.

Here’s what you need to know.

What is a charitable gift annuity?

A charitable gift annuity is a contractual agreement between you and a qualified charity. Essentially, you donate a lump sum of cash, securities or certain other assets like real estate to the charity. In return, the nonprofit guarantees fixed income payments for the rest of your life (and potentially the life of another beneficiary). Many colleges and nonprofit organizations offer charitable gift annuities.

To start the process, you’ll need to make a substantial upfront gift, and the charity will divide your contribution. A portion is allocated directly to their mission, supporting the programs and initiatives you care about. The remaining portion is invested to generate the income that will fund your future payouts.

The payout rate you receive from the annuity is based on your age, the age of any additional beneficiaries and current interest rates. Keep in mind that CGA rates are lower than traditional retirement annuities offered by life insurance companies.

Many nonprofits use rates recommended by the American Council on Gift Annuities. The single-life suggested maximum gift annuity rate is 5.2 percent for a 60-year-old, 6.3 percent for a 70-year-old and 8.1 percent for an 80-year-old, as of January 2024. The rate for two people is always lower than for a single annuitant.

If you don’t name a beneficiary, the CGA agreement ends when you pass away and the remaining funds stay with the charity. Likewise, if you select a beneficiary, any remaining funds go to the charity after the beneficiary dies.

How charitable gift annuities work

The process of setting up a charitable gift annuity is relatively straightforward.

Here’s how to establish one:

  1. Choose a qualified charity: Make sure the charity you want to support is a registered 501(c)(3) public charity authorized to offer CGAs. Since CGAs rely on the nonprofit’s ability to invest your money wisely, you’ll want to research the organization to ensure it’s financially sound with a proven track record of responsible investment management.
  2. Negotiate the terms: Discuss the details of the contract with the charity’s planned giving department. You’ll want to outline key terms, including the amount of your donation, the fixed payout rate you’ll receive and whether you wish to include a beneficiary (typically a spouse) who will continue receiving payments after you pass away.
  3. Finalize the agreement:  Once you’ve finalized the terms of the agreement, the charity will draw up a formal contract outlining the rights and obligations of both parties.
  4. Receive income payments: The charity will begin making fixed income payments to you, usually quarterly, for the rest of your life.

Tax benefits

Charitable gift annuities offer several attractive tax benefits for donors. First, you can deduct a portion of your initial gift from your taxable income. The deductible amount is based on a complex formula that considers your age, the payout rate and current interest rates. So you’ll receive immediate tax relief for a portion of your charitable contribution.

You’ll also enjoy tax breaks when you start receiving income from the CGA. That’s because a portion of each annuity payment is considered a return of your principal contribution and therefore isn’t taxed. The remaining portion is treated as ordinary income.

Your chosen charity will send a Form 1099-R to you each year detailing how the payments should be reported for income tax purposes.

How did Secure 2.0 impact charitable gift annuities?

The Secure Act 2.0 is a sweeping piece of retirement-related legislation signed into law December 2022. Secure 2.0 includes a provision that can make CGAs even more attractive for older philanthropists.

For those aged 70 ½ and older, the act allows for a one-time, penalty-free transfer of funds directly from an individual retirement account (IRA) to a CGA. While the gift wouldn’t be tax deductible, the IRA distribution counts toward required minimum distributions (RMDs) for the year.

This can be especially beneficial for people whose RMDs from their IRAs would push them into a higher tax bracket. In 2024, you can give up to $53,000 from your IRA to establish a CGA.

According to the IRS, charitable gift annuities funded with an IRA must begin making fixed payments of 5 percent or more within one year or less of the date of funding.

Fees and costs

The fees and costs associated with charitable gift annuities are generally minimal, a nice change of pace from other types of annuities, especially variable annuities. Still, it’s important to understand these costs before entering into an agreement.

Some charities may charge a one-time administrative fee to cover the costs associated with establishing and managing your CGA. This fee is usually around 1 to 2 percent of your initial gift amount.

Make sure to ask about any admin fees upfront and compare them between different charities offering CGAs. Some charities may be willing to negotiate the fee, especially for larger contributions.

While the charity manages the investments used to generate your income stream, they may incur minimal fees associated with those investments, such as expense ratios. These fees are usually baked into the specific investments themselves (such as mutual funds and stocks) and aren’t separate charges you pay directly.

Pros and cons of charitable gift annuities

Charitable gift annuities are often marketed as a win-win for you and your favorite charity, but it’s important to weigh the pros and cons carefully before moving forward.


  • Guaranteed income for life: The most appealing aspect of CGAs is that they provide a reliable and predictable source of income that cannot be outlived. This can be a major plus for people seeking financial security in retirement.
  • Tax benefits: The partial income tax deduction on your initial gift along with the potential for tax-favored income payments can help you reduce taxes in retirement while enhancing the overall value of your contribution.
  • Support a cause you believe in: CGAs allow you to make a significant contribution to a charity you’re passionate about and directly support their work.
  • Reduces the burden of managing investments: Since the charity handles the investment and distribution of your funds, you don’t have to worry about managing the financial complexities of your gift.


  • Irrevocable: Once you sign the annuity contract, your funds are out of reach. The inability to access your donated principal after the agreement is finalized is a significant drawback, so It’s crucial to ensure you won’t need access to your lump sum donation down the road.
  • Fixed payout rate: The income payments you receive from the charity are locked in at the time the agreement is signed and won’t get adjusted for inflation. While interest rates are currently high, locking in a low fixed rate can erode the purchasing power of your income stream over time.
  • Potential tax implications: While a portion of your income payments are generally tax-free, the remaining portion is considered taxable income. It’s important to factor this into your overall tax planning strategy.
  • Not suitable for everyone: CGAs might not be a good fit for younger donors with a long life expectancy. The fixed payout rate may not keep pace with inflation over time, and since payments need to last longer, the size of the payments you receive will be lower.

Bottom line

Charitable gift annuities offer a unique way to combine charitable giving with secure income planning. However, it’s important to carefully evaluate your financial situation, risk tolerance and long-term goals before committing to a CGA. Speaking with a financial advisor to ensure it aligns with your overall financial plan is a good idea.