For the first time in more than six years, the American Council on Gift Annuities (ACGA) announced that its suggested maximum rates for Charitable Gift Annuities are increasing. The new rates will be effective July 1, marking the first such increase since January 2012.
David Ely, chairman of the ACGA’s Rates Committee, explained that after reviewing the model portfolio the ACGA uses for determining the interest rate assumption used in setting rates, the maximum rates suggested by the ACGA will increase 0.3 percent—0.5 percent over the age range of most annuitants at the time gift annuities are funded. He noted, for example, that the maximum suggested rate for a 79-year-old annuitant, which is the average age of an annuitant when a gift annuity is funded, will increase from 6.6 percent to 7.1 percent.
A Charitable Gift Annuity differs from a for-profit annuity. Both annuities are based on a contract between the issuer and the purchaser/donor, and both annuities feature annuity payments that are paid on a pre-determined schedule to the purchaser/donor as outlined in the contract. But unlike their for-profit counterparts, the purchase of a Charitable Gift Annuity may generate an income tax deduction for the donor. After the donor’s death, the funds remaining in the annuity are used to further the mission of the donor’s chosen charitable organization.
According to its website, “The AGCA is the nation’s only 501(c)(3) non-profit organization dedicated to suggesting actuarially sound maximum Charitable Gift Annuity rates.” Most non-profits in the United States, including Plan International USA, use the ACGA rates to determine the rates on gift annuities they issue.
This is another key difference between a for-profit annuity and a Charitable Gift Annuity. A purchaser would likely choose a for-profit annuity based primarily on which issuer is offering the highest rate. Donors choosing a Charitable Gift Annuity, however, are able to focus on choosing an organization dedicated to a mission that most closely matches their own because the rates offered by each non-profit organization are the same.
As we are working through our first tax year under the new tax reform law, these increased Charitable Gift Annuity rates may provide a new opportunity to maximize your tax benefits. As I’ve blogged previously, the tax reform law has increased the standard deduction for individuals to $12,000 per year ($24,000 for married couples). This means that donors entitled to income tax deductions in excess of their standard deduction amount will enjoy the additional income tax benefit of itemizing their deductions for charitable giving.
A Charitable Gift Annuity allows you to make an impactful gift to charity, benefit from income tax deductions for your charitable gift, and also enjoy an additional stream of income at a competitive rate that is locked in for the rest of your life. Using Mr. Ely’s example above, if our 79-year-old donor contributes $50,000 to a Charitable Gift Annuity to benefit Plan, he will enjoy a substantial tax deduction and also receive an additional $250 per year in income as a result of the 0.5 percent increase in his interest rate, all while enjoying the satisfaction of knowing that he has left a legacy of supporting the world’s most vulnerable children.
If you’ve ever considered whether a Charitable Gift Annuity makes sense for you, please reach out to our planned giving team for more information, or click here for more details. Please consult your tax adviser to determine the suitability of any charitable gift to your particular circumstances.