Charitable Gift Annuities: How They Work (2026)

What is a charitable gift annuity?

A charitable gift annuity, usually shortened to CGA, is a contract between you and a charity rather than between you and an insurance company. You hand over a single gift, and in exchange the charity agrees to pay you a fixed income for the rest of your life. It sits in a different category than simply writing a check to a cause you support: you get something back in return, a guaranteed stream of payments, which is exactly what separates a CGA from an outright, no-strings donation.

A handful of rules set CGAs apart from other annuity contracts:

• Your gift is an irrevocable transfer. Once it is made, you cannot ask for the property back.
• A portion of your donation can qualify for a partial income tax deduction.
• The receiving organization has to be tax-exempt under Section 501(c)(3) of the tax code.
• Payments can start right away or be pushed to a future date you pick in advance.
• You can name a second person to receive payments alongside you, but a single gift cannot carry more than two annuitants.
• The agreement ends when the last annuitant dies, and the charity keeps whatever remains for its own programs.

How does a charitable gift annuity actually work?

A CGA is structurally close to a single premium immediate annuity: one lump-sum gift converts into a stream of fixed payments. The difference is who is on the other side of the table. With a CGA, that is a nonprofit, not an insurer, and the person receiving payments is still called the annuitant, exactly as with a commercial contract.

Once you give the gift, it becomes part of the charity's own assets. Your future payments are a general obligation of that organization, backed by everything it owns rather than by a segregated account holding just your contribution. Payments keep coming for as long as the annuitant is alive, regardless of how the charity's underlying investments actually perform.

When the annuitant dies, payments stop, and whatever is left becomes the charity's to keep and use. You can fund a CGA with cash, publicly traded securities, or in some cases other property. Charities will often accept a gift as small as $5,000, though in practice most gift annuities are funded well above that minimum.

Payments do not always have to start right away. A deferred gift annuity lets you make the donation now and push the first payment out to a later date you choose, often years down the road. Because the charity has longer to hold and grow the reserve before it starts paying you, a deferred structure can support a higher eventual payment rate than an immediate one funded with the same gift, which is worth asking about if you are still working and do not need the income yet.

Charitable gift annuities and your taxes

A CGA can help lower what you owe the IRS in the year you make the gift. If your entire deduction cannot be used against your income that year, you may be able to carry the unused portion forward and claim it over as many as five additional years. Because the math gets complicated fast, and because it interacts with your broader tax picture, this is a good spot to bring in a tax professional before you fund anything.

How are the payments taxed?

The tax treatment of your income depends on what you used to fund the gift. Cash contributions generally produce payments that start out taxed as ordinary income. Fund the CGA with appreciated stock or real estate instead, and each payment can be split three ways: part ordinary income, part capital gain, and in some cases part tax-free return of your own principal. Across most CGAs, ordinary income still makes up the largest share of what you receive.

That tax-free slice exists because part of every payment is treated as a return of your own cost basis rather than as income to you, using a formula similar to the exclusion ratio that applies to commercial annuities. Once your basis has been fully recovered through payments, typically once you outlive your original life expectancy at the time of the gift, the tax-free portion generally stops and the full payment becomes taxable. The charity issuing your annuity sends you a Form 1099-R each year, which breaks the payment down for your tax return. A tax professional can walk through exactly how a specific gift would be taxed for you.

Who typically sets up a charitable gift annuity?

According to the American Council on Gift Annuities, most CGA donors are already retired, want more predictable cash flow, and like both the certainty of a fixed payment and the tax benefits that come with the gift. A few situations where a CGA tends to make sense:

• Bank CDs and other fixed-income options are paying too little, and you want a bump in cash flow.
• You are sitting on appreciated stock or fund shares, considered selling and reinvesting, but do not want to trigger a big capital gains bill in the process.
• You want payments that never move with interest rates or the stock market, and that you cannot outlive.
• You would like income to continue for someone you care about without that person waiting on probate, and in a tax-efficient way.

Married couples often name each other as joint annuitants, which lets payments continue at the same fixed rate for as long as either spouse is alive. Because a longer expected payment period lowers the rate a charity can afford to offer, a two-life CGA generally pays somewhat less per year than a single-life gift of the same size, a tradeoff many couples still find worthwhile for the added security.

How are charitable gift annuity payments calculated?

The American Council on Gift Annuities publishes suggested payout rates that member charities widely rely on. Those rates are deliberately built so that, on average, roughly half of the original gift remains for the charity once the agreement ends, a target the ACGA calls the residuum. Because of that built-in cushion, CGA rates run lower than what you would get from a commercial annuity for the same amount. If maximizing your own lifetime income is the only goal, a commercial annuity will generally outpay a CGA.

Behind those suggested rates sits real actuarial work: mortality tables for the ages involved and a conservative assumption for how much the charity's reserve can earn over time, both reviewed periodically by professional actuaries retained by the ACGA. Age drives the rate more than almost anything else. An older annuitant has a shorter expected payment period, so a charity can typically offer a higher fixed rate to a donor in their eighties than to one in their sixties, for the exact same size gift.

A note on rates and state limits

Suggested payout rates, and the maximum rates some states allow, are not fixed forever. The ACGA reviews and adjusts its assumptions from time to time, and a handful of states, New York among them, publish their own ceiling that can differ slightly from the ACGA's number. Do not rely on a specific percentage you read somewhere else. Ask the charity for its current rate table before you commit to a gift.

It helps to see the tradeoff in hypothetical, round numbers. Say a 72-year-old donor contributes $100,000.

The commercial contract pays more every year, precisely because the CGA is priced to leave a meaningful share of the gift behind for the charity. More income now, or a larger completed gift later, is the real choice being made, not the headline rate itself. You can request a hypothetical income quote on a commercial contract to compare against a CGA table a charity sends you.

SECURE 2.0 and a one-time IRA option

The SECURE 2.0 Act, signed into law in December 2022, added a one-time opportunity for IRA owners who are old enough to make qualified charitable distributions. Once, in a single tax year, you can direct up to a set dollar limit, $50,000 at the time the law passed and adjusted for inflation afterward, straight from a traditional IRA into a CGA or a similar charitable trust arrangement, without that transfer counting as taxable income to you the way a normal IRA withdrawal would.

To qualify, the gift annuity funded this way has to begin paying you a fixed rate of at least 5% within a year of being funded, and only one such election is allowed in your lifetime. Because this is a one-time, use-it-once option with a hard dollar ceiling, it is worth confirming the current indexed limit and reviewing the details with a tax professional before you fund a CGA through your IRA this way.

Weighing the pros and cons

A charitable gift annuity is not simply a better or worse version of a commercial annuity, it is a different kind of decision that combines income with a gift. Review the pros and cons above and compare a CGA table against a commercial annuity quote for the same amount before you decide which one fits what you are actually trying to accomplish.