A charitable gift annuity is a contract in which a donor transfers cash or property to a qualified charity and, in exchange, receives fixed payments for one or two lives, with whatever remains passing to the charity. It combines a partial charitable gift with a lifetime income stream in a single arrangement.
A charitable gift annuity (CGA) exchanges an irrevocable gift for fixed lifetime payments plus an upfront partial charitable deduction. Donors age 70½ or older can also fund one directly from an IRA through a one-time election capped at $55,000 for 2026, up from $54,000 in 2025 (Source: IRS Notice 2025-67; IRS Pub 526, 2025).
What is a charitable gift annuity?
A charitable gift annuity is a legally binding contract between one donor (or a couple) and a charity: the donor makes an irrevocable transfer of cash or assets, and the charity agrees to pay a fixed dollar amount for the life of one or two named annuitants. When the last annuitant dies, the charity keeps the remaining value (Source: IRS Pub 526, 2025).
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The payment is fixed for life and does not rise or fall with markets. Because part of the transfer is a gift, a traditional cash-funded or asset-funded CGA can generate a partial charitable income-tax deduction in the year of the gift (Source: IRS Pub 526, 2025).
The annuity is backed by the general assets of the charity, not by an insurance company, so the payment obligation depends on the charity remaining solvent. A CGA is different from a commercial annuity in that a portion of the transfer is intended as a charitable gift.
How a charitable gift annuity works, step by step
A charitable gift annuity works by converting a lump-sum gift into fixed lifetime payments while reserving a remainder for charity. The donor funds the contract, the charity sets the rate based on the annuitants’ ages, and payments begin either immediately or on a deferred date (Source: IRS Pub 526, 2025).
- The donor transfers cash or property (often long-term appreciated securities) irrevocably to the charity.
- The charity issues a contract naming one or two annuitants and a fixed annual payment.
- The charity values the retained annuity using IRS actuarial tables and the applicable Section 7520 rate, then determines the deductible gift portion (Source: IRS Pub 1457; IRS Pub 526, 2025).
- Payments begin, generally on a quarterly or annual schedule, and continue for life.
- At the death of the last annuitant, the charity retains the remaining principal.
Charitable gift annuity payout rates
Charitable gift annuity payout rates are fixed at the time of the gift and increase with the annuitant’s age, because older annuitants have a shorter expected payment period. Many charities voluntarily follow the suggested maximum rates published by the American Council on Gift Annuities (ACGA), which act as a ceiling a charity may fall below but not exceed (Source: American Council on Gift Annuities, Current Gift Annuity Rates, acga-web.org).
Two factors move the rate: the age (or ages) of the annuitants and whether payments start now or are deferred to a later year. A single-life contract pays a higher rate than a two-life contract at the same age because the payment period is expected to be shorter.
One specific numeric floor applies only to IRA-funded gift annuities described below: by statute those contracts must pay a fixed rate of 5 percent or greater, with payments beginning no later than one year from funding (Source: 26 U.S.C. § 408(d)(8)(F)). For a standard cash-funded CGA, the rate is set by the charity within its own schedule.
The upfront charitable income-tax deduction
A traditional charitable gift annuity funded with cash or appreciated property can produce a partial charitable income-tax deduction in the funding year. The deduction equals the fair market value of the property transferred minus the present value of the annuity the donor keeps (Source: IRS Pub 526, 2025; IRS Pub 1457).
This follows the quid pro quo rule: a donor “can deduct only the amount of your contribution that is more than the value of the benefit you receive” (Source: IRS Pub 526, 2025). The present value of the retained annuity is computed with IRS actuarial tables and the Section 7520 rate, which the IRS sets monthly at 120 percent of the federal midterm applicable federal rate.
Funding with long-term appreciated securities can add a second benefit: the capital-gain portion attributable to the annuity interest may be reported gradually over the payment period rather than all at once, under bargain-sale rules (Source: IRS Pub 526, 2025; 26 U.S.C. § 1011(b)). The exact monthly Section 7520 rate must be looked up for the specific gift month.
How charitable gift annuity payments are taxed
Charitable gift annuity payments from a traditional cash-funded or asset-funded contract are usually part tax-free return of principal and part ordinary income, at least for a set number of years. The split is set by the General Rule exclusion ratio, which equals the donor’s cost, or investment in the contract, divided by the expected return (Source: IRS Pub 575; IRS Pub 939).
The tax-free portion recovers the donor’s own investment over the expected payout period. Once that investment is fully recovered, “your annuity payments are generally fully taxable” (Source: IRS Pub 575). If the annuitant dies before recovering the full investment, the unrecovered amount may be deductible on the final return.
For gifts of appreciated property, a share of each payment during the recovery period can also be taxed as capital gain rather than ordinary income (Source: IRS Pub 526, 2025). The tax character of each payment varies by funding method and by the actuarial values used to compute the exclusion ratio.
Funding a charitable gift annuity from an IRA (the fully-taxable distinction)
An IRA owner age 70½ or older can fund a charitable gift annuity once in a lifetime through the SECURE 2.0 “Legacy IRA” election, capped at $55,000 for 2026 and $54,000 for 2025 (Source: IRS Notice 2025-67; IRS Pub 526, 2025). This route works very differently from a cash-funded CGA, and the difference is easy to miss.
SECURE 2.0 added a one-time election to treat a qualified charitable distribution (QCD) to a split-interest entity, including a CGA, as a QCD (Source: 26 U.S.C. § 408(d)(8)(F)). The specific one-time mechanics of that election, including how it interacts with the annual QCD limit and required minimum distributions, are covered on the Q3 Advisors explainer, What is a QCD. Statutory conditions for the CGA version are strict:
- Payments must be fixed at 5 percent or greater and begin within one year of funding (Source: 26 U.S.C. § 408(d)(8)(F)).
- The only permitted annuitants are the IRA owner, the owner’s spouse, or both (Source: 26 U.S.C. § 408(d)(8)(F)).
- The gift annuity must be funded only by qualified charitable distributions (Source: IRS Pub 526, 2025).
The critical distinction: every payment from a QCD-funded gift annuity is fully taxable as ordinary income, with no tax-free return-of-principal component, because the statute says these distributions “shall not be treated as an investment in the contract for purposes of section 72(c)” (Source: 26 U.S.C. § 408(d)(8)(F)). A QCD-funded CGA also produces no separate charitable deduction; its only tax benefit is that the funding IRA distribution is excluded from income. The partial deduction and partly tax-free income described earlier apply to a traditional CGA, not to the IRA-funded version.
Charitable gift annuity vs charitable remainder trust
A charitable gift annuity and a charitable remainder trust (CRT) both provide income to the donor and a remainder to charity, but they differ in structure, cost, and flexibility. A CGA is a simple contract with a single charity, while a CRT is a separate trust that can name multiple charities and hold a wider range of assets (Source: IRS Pub 526, 2025).
| Feature | Charitable gift annuity | Charitable remainder trust |
|---|---|---|
| Structure | Contract with one charity | Separate irrevocable trust (CRAT or CRUT) |
| Payments | Fixed for life | Fixed (CRAT) or variable percentage (CRUT) |
| Backing of payments | General assets of the charity | Assets held inside the trust |
| Typical setup cost | Low; charity issues the contract | Higher; trust drafting and administration |
| Charitable deduction | Partial, for a traditional CGA (Pub 526, 2025) | Partial, based on remainder value (Pub 526, 2025) |
| IRA one-time funding | Allowed, up to $55,000 for 2026 (Notice 2025-67) | Allowed (CRAT or CRUT) under the same one-time cap |
A CGA often suits a single gift to one charity where simplicity matters, while a CRT can suit larger, more complex gifts. The SECURE 2.0 one-time election can fund a CRAT, CRUT, or CGA, but the same $55,000 cap for 2026 applies across the choice (Source: IRS Pub 526, 2025; IRS Notice 2025-67).
How a gift annuity can interact with Roth conversion planning
A traditional cash-funded charitable gift annuity generates a charitable deduction in the funding year, and that deduction may reduce taxable income in a year when a household also reports Roth conversion income, subject to the AGI-based limits under Section 170(b) (Source: IRS Pub 526, 2025). By contrast, an IRA-funded CGA produces no deduction, so it cannot offset conversion income that way; its benefit is the income exclusion on the IRA distribution.
Because charitable strategies and IRA distributions can move modified adjusted gross income, they may also touch Medicare IRMAA brackets and interact with required minimum distributions. The deduction is subject to AGI percentage limits under Section 170(b) that vary by the type of property gifted and the recipient organization (Source: IRS Pub 526, 2025).
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This article is educational and is not advice; for guidance on your own circumstances, consult a qualified tax or financial professional.
Frequently asked questions
How does a charitable gift annuity work?
A charitable gift annuity works by exchanging an irrevocable gift of cash or property for fixed payments over one or two lives, with the remainder kept by the charity. The charity sets the rate from the annuitants’ ages, values the retained annuity with IRS tables and the Section 7520 rate, and begins payments (Source: IRS Pub 526, 2025; IRS Pub 1457).
Is charitable gift annuity income taxable?
It depends on how the annuity is funded. Payments from a traditional cash-funded or asset-funded CGA are often partly a tax-free return of principal and partly ordinary income under the General Rule, then fully taxable after the investment is recovered (Source: IRS Pub 575). Payments from an IRA-funded CGA are fully taxable ordinary income (Source: 26 U.S.C. § 408(d)(8)(F)).
What is the charitable deduction for a gift annuity?
For a traditional CGA, the charitable income-tax deduction equals the fair market value of the property transferred minus the present value of the annuity the donor keeps, following the quid pro quo rule (Source: IRS Pub 526, 2025). An IRA-funded CGA generates no separate deduction; its tax benefit is the exclusion of the funding IRA distribution from income (Source: 26 U.S.C. § 408(d)(8)(F)).
Can you fund a charitable gift annuity with an IRA?
Yes. Under SECURE 2.0, an IRA owner age 70½ or older can make a one-time election to fund a CGA from the IRA, capped at $55,000 for 2026 and $54,000 for 2025 (Source: IRS Notice 2025-67; IRS Pub 526, 2025). The contract must pay 5 percent or greater within one year, name only the owner or spouse, and be funded only by qualified charitable distributions.
What is the difference between a charitable gift annuity and a charitable remainder trust?
A charitable gift annuity is a simple contract with one charity that pays a fixed amount for life, backed by the charity’s general assets. A charitable remainder trust is a separate legal trust that can hold varied assets, name multiple charities, and pay fixed or variable amounts, usually at higher setup cost (Source: IRS Pub 526, 2025).
What are the payout rates for a charitable gift annuity?
Payout rates are fixed when the gift is made and rise with the annuitant’s age, since older annuitants have a shorter expected payment period. Many charities voluntarily follow the American Council on Gift Annuities suggested maximum rates, which act as a ceiling (Source: American Council on Gift Annuities, acga-web.org). An IRA-funded CGA carries a statutory floor of 5 percent or greater (Source: 26 U.S.C. § 408(d)(8)(F)).
Sources
IRS Publication 526, Charitable Contributions (2025), https://www.irs.gov/publications/p526 ·
IRS Publication 590-B, Distributions from Individual Retirement Arrangements (2025), https://www.irs.gov/publications/p590b ·
IRS Publication 575, Pension and Annuity Income, https://www.irs.gov/publications/p575 ·
IRS Publication 939, General Rule for Pensions and Annuities ·
IRS Publication 1457, Actuarial Valuations ·
26 U.S.C. § 408(d)(8), https://www.law.cornell.edu/uscode/text/26/408 ·
IRS Notice 2025-67 (2026 retirement and IRA cost-of-living adjustments), https://www.irs.gov/pub/irs-drop/n-25-67.pdf ·
IRS Topic No. 506, Charitable Contributions, https://www.irs.gov/taxtopics/tc506 ·
American Council on Gift Annuities, Current Gift Annuity Rates, https://www.acga-web.org/current-gift-annuity-rates
