Like an immediate gift annuity, a deferred gift annuity also provides fixed payments to you for life in exchange for your gift of cash or securities.
It offers the same financial benefits as the immediate gift annuity, but with a deferred gift annuity the payments start on a date you choose that is at least one year after you make the gift.
This gift could be right for you if you have sufficient income now but want to supplement your income later, for example, when you retire.
Payment amount depends on your age and years until payments start
As shown in the table below, the older you are when you start receiving payments and the longer you wait to start your payments, the greater the payment rate you will receive.
Sample deferred annuity rates for a $25,000 gift
| Age at Gift | Years Deferred | Payment Rate | Payment | Deduction |
|---|---|---|---|---|
|
55 |
10 |
9% |
$2,250 |
$10,884 |
|
60 |
8 |
8.7% |
$2,175 |
$11,122 |
|
65 |
6 |
8.4% |
$2,100 |
$11,484 |
|
70 |
5 |
8.7% |
$2,175 |
$12,486 |
Tax benefits
Income tax savings
You will earn an immediate income tax charitable deduction in the year of your gift, providing tax savings if you itemize. The amount of this deduction will depend on several factors.
Capital gains tax savings
If you give appreciated property, such as stock, to create a deferred gift annuity, you will pay tax on only some of your capital gain in the property. Even better, if you are the payment recipient of your deferred gift annuity, this capital gain will be spread out in installments over many years and won't start until the year you begin to receive payments. In this case, your capital gain income will replace some of the tax-free portion you would receive if you were to give cash.
Estate tax savings
By removing the gift assets from your estate, you may also reduce future estate taxes and probate costs. The amount of these savings will depend on the size of your estate and on estate tax law in force at the time your estate is settled.
Wilfred Lozano, 55, works full time and expects to work for another 10 years or so. He owns CDs and a money market account, both of which pay about 2% interest each year.
Wilfred would like to make a significant gift to Pine Street Inn, but he wants to be sure he has adequate cash flow after he retires. He can dramatically increase his after-tax cash flow in his retirement by giving some of his CD or money market account funds to Pine Street Inn in exchange for a deferred gift annuity.
The table below illustrates the results if Wilfred gives $50,000 to create a deferred gift annuity that starts making payments in 10 years. Wilfred is able to significantly increase his cash flow from the $50,000, and will receive an immediate income tax deduction that may provide tax savings!
|
|
Tax benefit | Income before tax | Income after tax (37% tax rate) |
|---|---|---|---|
|
Wilfred keeps $50,000 in CD/Money Market |
None |
$1,000 |
$630 |
|
Wilfred funds a 9.0% gift annuity with payments deferred 10 years |
$21,767* income tax deduction |
$4,500 |
$3,360 |
*Deduction amount may vary depending on the timing of the gift.