A deferred charitable gift annuity (CGA) enables you to make charitable donation today and pocket cash flow tomorrow. Often, CGA payments are deferred until retirement.
Suppose that Henry Williams gives $25,000 to his alma mater in 2005, when he is 50. The university agrees to pay Henry an annuity starting in 2020, when he will be 65 and expects to be retired.
With a deferred CGA, the amount of the original gift is compounded annually, at a predetermined interest rate, during the deferral period. The annuity is then based on the anticipated sum. Thus, you can lock in a future income stream today, based on projected (but not realized) returns. What’s more, the projected return will not be reduced for taxes.
Suppose, in our example, when Henry gives $25,000 to his alma mater, the school offers a buildup rate of around 5 percent. With a 15-year deferral, the annuity rate will be roughly doubled.
Say that a 65-year-old donating a CGA normally would get annual cash flow of 6 percent. By doubling that rate with a deferred gift, Henry will receive about 12 percent a year. On his $25,000 gift, Henry would receive around $3,000 per year, starting in 2020. He may be in a lower tax bracket then, which would enable him to keep more of that cash flow.
