Many American seniors planning for retirement have one important goal: securing a steady income stream. However, did you know that giving to charity supports the causes you care about and provides financial benefits like a charitable gift annuity (CGA)? You can enjoy tax-efficient giving and create a reliable income stream for retirement. Find out how charitable gift annuities work, the tax advantages, and how they can support your financial planning in Ohio.

Charitable Gift Annuities Explained

The IRS incentivizes charitable contributions by allowing taxpayers to deduct a portion of their donation from their taxable income. Nonetheless, traditional deductions often depend on exceeding the standard deduction, which may not be the case for all retirees.

A charitable gift annuity offers a more impactful tax benefit. It’s a unique financial arrangement that lets you donate to a retirement income charity while simultaneously generating revenue. When you contribute cash or securities to a qualified charity through a CGA, you receive a tax deduction for a portion of the gift’s value.

Then, the CGA provides a fixed income stream for the rest of your life, with a portion of each payment considered a tax-free return of your principal contribution. Such giving appeals to people who want to support an important cause while ensuring financial stability in retirement.

Benefits of Tax-Efficient Giving

CGAs offer several tax advantages that make them an attractive option for donors. The most obvious is you can claim a charitable deduction on your income taxes in the year you start donating. The tax advantage amount depends on the value of the assets transferred and the income you expect to receive from the annuity.

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Other benefits you can enjoy as you support your passion are guaranteed income and reduced investment risk. Unlike market-dependent investments like stocks, bonds, and mutual funds, a CGA provides a fixed payout throughout your lifetime. Such predictability offers peace of mind and helps ensure your financial security in retirement.

The income from a charitable gift annuity is generally unaffected by market fluctuations. This stability can be reassuring for retirees who want to avoid the risks associated with other investment vehicles. Your fixed payments will supplement retirement income sources, like Social Security or pensions, as an additional financial security.

Considerations Before Making a Decision

Even though CGAs offer numerous advantages, you need to understand their limitations. Before committing to a charitable gift annuity, here are a few factors to consider:

• Reduced Principal Access: The initial donation to a CGA is typically irrevocable. Once the annuity is established, you cannot access the principal amount.
• Fixed Payout Rates: Current interest rates may affect the income generated by a CGA. Before selecting a plan, compare rates offered by different charities and consult with your financial advisor.
• Tax Implications: Consulting a tax or financial advisor is recommended to help you fully understand the specific tax implications of a CGA for your unique financial situation.

Always evaluate the financial health and reputation of the charity you plan to support. Ensure the organization has a solid track record of meeting its payment obligations and adheres to CGA best practices. 

Partnering for a Secure and Philanthropic Retirement 

Charitable gift annuities offer a great way to support your favorite causes, receive tax rebates, and secure a reliable income. But before you jump the gun, learn the impact on your estate planning. CGAs can reduce the size of your taxable estate, though they may also affect your heirs’ inheritance.

Discuss your plans with an estate planning attorney to ensure your charitable giving aligns with your overall estate planning strategy. Brenden Kelley Law has extensive experience guiding clients through related financial and legal decisions. Get in touch or call our office at 216-644-3359 today to schedule a comprehensive consultation. Let us help you determine if a chosen CGA aligns with your retirement goals and connect you with qualified financial advisors to explore your options.