Gift Annuities: How They Work

Increased gift annuity rates will benefit you.

A young man cuts circles out of construction paper to practice skills with his occupational therapist. Spaulding Rehabilitation is happy to offer higher charitable gift annuity payout rates, which have increased for 2024! In addition to advancing Spaulding’s vital mission in recovery care and research, a charitable gift annuity provides fixed payments to you for life. Gift annuities are easy to set up and the payments you receive are backed by the general resources of Spaulding for as long as you live. A charitable gift annuity could be right for you if:

You are at least 65 years of age and want to make a generous gift ($10,000 or more) to Spaulding Rehabilitation.
You are interested in fixed, dependable payments for life and would like income that is partially tax-free.
You want to increase your cash flow and save income taxes or capital gains taxes.

How it works

A charitable gift annuity is a simple contract between you and Spaulding Rehabilitation. In exchange for your irrevocable gift of cash, securities, or other assets, Spaulding will pay you a fixed amount each year for life. The amount of the payment depends on the amount donated and the age of the payment recipient. There are no costs to establish the arrangement and no costs at all to maintain it. Whatever is left of your gift when the annuity ends will go to support Spaulding.

Your payments

You decide who will get the payments from your gift annuity. Usually, this recipient will be you, or you and your spouse. Alternatively, you can select one or two other people to receive the payments from your gift annuity. For example, you may wish to provide income for parents, a sibling, or a close friend.

Payments last for your lifetime. You cannot outlive your payments.

Payments are predictable. Your payments are not subject to stock market volatility. You will get the same amount each year.

Part of each payment typically will be tax-free for many years. This tax-free portion makes the payments more valuable than an equal amount of fully taxable income.

The amount of this tax-free portion will be greater if you give cash than if you give stock or other appreciated property.

The older you are when you make your gift, the greater the payment rate you will receive. If you choose other people to receive the payments from your gift annuity, their ages at the time of your gift will determine their payment rate.

Table establishing that with a gift of $20,000 in cash or stock, you would receive: At age 84, an annuity rate of 8.9%, an annuity amount of $1,780, and a charitable deduction of $10,181. At age 76, an annuity rate of 7.2%, an annuity amount of $1,440, and a charitable deduction of $8,292. At age 69, an annuity rate of 6.2%, an annuity amount of $1,240, and a charitable deduction of $7.134. Values are estimated. Actual benefits would vary based on your age, the timing and amount of your gift, and the interest and annuity rates in effect at the time.

Postponing your gift annuity payments

You may also consider deferring your payments to when you need more income, such as retirement. You’ll receive a substantial charitable income tax deduction in the year that the gift is made, but because your payments are in the future you can receive a high payout rate later. The longer you wait, the higher the payout rate. This deferral is a great way to support Spaulding today and reap the benefits of waiting until you need the income.

IRA Contributions

In addition, if you are over age 70 ½, it is now possible to establish a one-time gift annuity with a transfer of up to $53,000 directly from your Individual Retirement Account (IRA) to Spaulding. This transfer would not be reportable as taxable income, which could be an attractive benefit for those who do not itemize their tax deductions. Moreover, for those age 73 or older, such a “qualified charitable distribution” (QCD) can count against your required minimum distribution (RMD). Such IRA-funded gift annuities operate much like gift annuities funded with other assets, although you would not be entitled to an income tax charitable deduction, and 100% of your annuity payments would be taxable as ordinary income. To explore the benefits and next steps, please contact John MacRae, Senior Director of Principal and Major Gifts, at (617) 306-2394 or jcmacrae@mgb.org.