Charitable Gift Annuity: Rates, Tax Rules, and When It Makes Sense

Not tax or legal advice — CGA suitability depends on your age, asset type, income needs, and charitable goals. Exact deduction and payment calculations require IRS actuarial tables and are best done with a charitable planning specialist.

What a charitable gift annuity does

A charitable gift annuity (CGA) is a simple contract between you and a charity: you transfer cash or assets to the charity irrevocably, and in exchange the charity promises to pay you (and optionally a second beneficiary) a fixed dollar amount every year for the rest of your life. When you die — or when both annuitants in a two-life CGA have died — whatever remains passes to the charity to use for its mission.

Three things happen at once:

1. You get a charitable income tax deduction in the year of the gift — typically 30–50% of the amount transferred, depending on your age and the current §7520 rate.
2. You receive guaranteed fixed income for life — at rates currently ranging from 5.2% to 10.1% depending on age, significantly above CD or Treasury yields for older donors.
3. A portion of each payment is tax-free — the IRS treats part of each annuity payment as return of your original investment, reducing the current income tax on the stream.

2026 ACGA suggested maximum payout rates

The American Council on Gift Annuities (ACGA) publishes suggested maximum payout rates each year. Most charities follow these rates. As of January 2024 (unchanged through April 2026¹), single-life rates for common ages are:

The ACGA designs these rates to leave roughly 50% of the original gift for the charity after all annuity payments have been made — based on a 5.75% investment return assumption. Your individual charity may pay less than these rates; they may not exceed them.

Why rates rise with age: Shorter life expectancy means fewer total payments, leaving more for charity at the required 50% residuum. An 85-year-old giving $100,000 gets 9.1% because the charity can afford to pay more per year given the shorter expected payment period.

Charitable deduction calculation

Your deduction equals the fair market value of your gift minus the present value of all the annuity payments the IRS expects you to receive. The IRS calculates that present value using:

• The §7520 rate — currently 4.6% for April 2026²
• IRS actuarial mortality tables (Table S for single-life annuities)
• Your age at the time of the gift

For a lower §7520 rate, the IRS assigns a higher present value to the annuity stream you receive — leaving a smaller remainder for charity and a smaller deduction for you. At 4.6%, deductions for typical ages fall approximately in this range:

These are approximate ranges; exact calculation requires IRS Table S factors from IRS Publication 1457 or gift planning software. Consult a specialist before relying on these for tax planning.

The deduction is subject to the standard AGI limits: 60% of AGI for cash gifts, 30% for appreciated property, with a 5-year carryforward for excess amounts. Under OBBBA (effective 2026), the deduction benefit is also capped at 35% — so even if your marginal rate is 37%, a $100,000 deduction saves at most $35,000 in federal income tax, not $37,000.³ Separately, cash charitable deductions apply only to the extent they exceed 0.5% of AGI — for most HNW donors this floor is minor (on $500K AGI, the first $2,500 of deduction is disallowed).

Tax treatment of your annuity payments

Not all of the income you receive is taxed the same way. Each annuity payment has up to three components, determined by IRS rules at the time of the gift:

1. Tax-free return of principal. A portion of each payment is treated as return of your investment in the contract — untaxed until you've received back your full cost basis. This is the most favorable portion and typically represents 50–65% of each payment for donors in their 60s and 70s.
2. Ordinary income. The remainder is taxed as ordinary income at your marginal rate. Once you outlive the IRS life expectancy used in the original calculation, 100% of each payment becomes ordinary income.
3. Long-term capital gain (appreciated property only). If you funded the CGA with appreciated stock or other property, a portion of the gain inherent in the transferred assets is recognized as long-term capital gain — but spread over your IRS life expectancy, not all recognized in year one. For a donor in the 20% LTCG bracket who transfers $500K of stock with a $200K basis, this spread-out recognition is dramatically more favorable than selling the stock and donating the proceeds.

Funding with appreciated stock

Appreciated stock (held more than one year) is often the optimal funding asset for a CGA because:

• You get the charitable deduction at the stock's full fair market value — you don't pay capital gains tax on the appreciation the way you would if you sold the shares first and donated cash.
• The built-in gain is spread over your life expectancy as long-term capital gain, not concentrated in one year.
• The after-tax payment stream is materially better than if you had sold the stock, paid the capital gains tax, and then funded the CGA with the reduced after-tax proceeds.

Numeric comparison — $200,000 stock position, $80,000 basis, age 72:

• Sell then fund: Recognize ~$120,000 LTCG (say, $24,000 tax at 20%). Fund CGA with $176,000 net. Payment at 6.6% (age 72 rate): $11,616/yr. Deduction on $176,000 ≈ $66,000.
• Fund directly: No immediate capital gain. Fund CGA with $200,000. Payment at 6.6%: $13,200/yr. Deduction on $200,000 ≈ $75,000. Capital gain ($120,000) recognized as LTCG spread over ~15 years ≈ $8,000/yr.

Direct funding produces ~$1,584/yr more income and a ~$9,000 larger deduction, at the cost of recognizing spread-out LTCG of ~$8,000/yr versus nothing. For most donors in the 15% or 20% LTCG bracket, direct funding still wins significantly.

IRA-funded CGA: the SECURE 2.0 one-time election

Under SECURE 2.0 Act § 307, donors age 70½ or older may make a one-time lifetime election to transfer up to $55,000 from an IRA directly to fund a charitable gift annuity.⁴ Key mechanics:

• The $55,000 counts toward your 2026 annual QCD limit of $111,000 — you can use both in the same year if you have the IRA assets, but the combined total can't exceed $111,000.
• The transfer is excluded from your taxable income (like a regular QCD), and it can satisfy some or all of your Required Minimum Distribution for the year.
• You do not receive an additional charitable income tax deduction — the exclusion from income is the tax benefit.
• The annuity payments you receive are taxed as ordinary income, with no tax-free return-of-principal component (because the IRA funds were pre-tax).
• The election is once per lifetime — you cannot undo it or fund a second CGA via IRA later.

This option is powerful for donors who want lifetime income, have IRA assets they'd otherwise be forced to distribute as taxable RMDs, and have a meaningful charitable intent. Combining a $55,000 IRA-funded CGA with a separate $56,000 regular QCD contribution to operating charities allows a married couple to move $222,000 total out of IRAs tax-free in 2026.

Two-life CGAs for couples

A two-life CGA pays until the second of two annuitants dies — typically spouses. Because the payment period is statistically longer, the payout rate is lower than single-life rates. Two-life rates from the 2024 ACGA schedule (unchanged April 2026):

• Both age 65: 5.0%
• Ages 65 and 70: ~5.4%
• Both age 70: 5.5%
• Ages 70 and 75: 5.8%
• Both age 75: 6.2%
• Both age 80: 6.9%

The tradeoff is straightforward: the surviving spouse continues receiving payments after the first death, providing income security, but the payout rate and initial deduction are lower than a single-life arrangement on the older spouse's life alone.

CGA vs. CRT vs. DAF — decision table

Choose a CGA when: You want a simple, guaranteed income stream from a specific charity you already support, your gift is in the $25K–$250K range, and you don't need flexibility to redirect the charitable remainder across multiple organizations.

Choose a CRT instead when: Your gift exceeds $250K, you have a large concentrated position where capital gains management is the primary driver, you want to direct the remainder to multiple charities (including a DAF), or you need CRUT variable payments linked to portfolio growth.

Who a CGA works best for

• Donors age 65–85 with long-held highly appreciated stock — the combination of deduction, spread-out capital gain recognition, and guaranteed income is most compelling at these ages and payout rates.
• Retirees who already support one institution deeply — university alumni, hospital supporters, community foundation donors. You strengthen the relationship and receive income you can live on.
• IRA-heavy donors age 70½+ with meaningful charitable intent — the one-time $55K IRA-to-CGA election avoids ordinary income tax on the distribution entirely.
• Donors with modest gift sizes ($25K–$100K) — below the practical minimums for a CRT but above the threshold where a CGA makes actuarial sense for the issuing charity.

Common mistakes

• Choosing the issuing charity solely by rate, not reliability. Every charity that issues CGAs assumes liability to pay you for life, potentially 20–30 years from a $25K contract. State regulations require reserves, but the charity's long-term financial health matters. Stick with charities that have been issuing CGAs for decades and have strong financials.
• Funding with short-term gain property or depreciated assets. The tax benefits of a CGA are optimized for long-term appreciated property. Short-term gains are ordinary income regardless of the vehicle. If an asset has declined in value, sell it first (capture the loss), then donate cash.
• Ignoring the OBBBA 35% deduction cap in the calculation. If your marginal rate is 37%, the 35% cap means the effective after-tax cost of your charitable gift is slightly higher than you'd calculate using 37%. Not a deal-breaker, but it needs to be in your model.
• Using the one-time IRA CGA election carelessly. It's lifetime-once. If you use $30,000 today and later want to fund a larger CGA from your IRA, you can't. Run the math before committing.
• Overlooking the two-life vs. single-life tradeoff. Many donors instinctively choose two-life for security. At age 75+, the rate difference between single-life (7.0%) and two-life with a 70-year-old spouse (5.8%) is 1.2 percentage points — on a $500,000 gift, that's $6,000/yr of income foregone. Whether the spousal protection is worth that cost depends on other income sources and total estate picture.

What a specialist adds

A fee-only advisor specializing in charitable planning will model the CGA against the CRT and direct DAF alternatives in your specific context — factoring in your AGI, the OBBBA 35% cap, carryforward of excess deductions over 5 years, the specific appreciated positions in your portfolio, and whether the SECURE 2.0 IRA-to-CGA election is the right use of your one lifetime shot. For many donors, a CGA is the right answer — but for others with larger or more complex positions, a CRT or DAF combination generates materially better outcomes that aren't obvious without modeling.