Deferred-Payment Gift Annuity

This type of gift might appeal to a donor if the donor wants to support UJA-Federation, is 40 to 60 years old, has a high income, needs to benefit now from a current tax deduction, and is interested in augmenting potential retirement income.

The deferred-payment gift annuity involves the current transfer of cash or marketable securities in exchange for which UJA-Federation pays the donor an annuity starting at a future date—usually at the donor's retirement. The gift can consist of a single transfer, a series of transfers, or periodic transfers to the plan in high-income years.

The donor realizes an immediate charitable deduction for the gift portion of each transfer to the deferred gift-annuity plan. A portion of each annuity payment, when the payments begin, will be a tax-free return of principal over the life expectancy of the annuitant. When appreciated long-term capital-gain securities are transferred, any reportable capital gain is spread out over the donor-annuitant's life expectancy.

Gift Range: $10,000 or more

Example: Michael, aged 57, wishes to supplement his retirement income with deferred-payment gift annuities. After consulting with his own financial advisors and a member of our staff, he decides to contribute $25,000 each year for the next ten years to establish the gift annuities.

The tax and financial benefits of this arrangement to Michael are as follows:

• Under the deferred-gift arrangement, Michael is entitled to a charitable deduction for each annual contribution. While the deductions vary from year to year, the total charitable deduction over the ten-year period—based on current IRS mortality and interest assumptions—will be approximately $123,540 (about 49% of the amount he contributes over the ten-year period).
• Beginning in the year Michael attains the age of 67, when retirement income becomes important, he will receive $17,700 each year from his well-planned annuities. In addition, a portion of those payments will be excludable from his taxable income for his life expectancy.
• Unlike a qualified retirement plan, there are no upper limits to his contributions or other restrictive requirements on the design of the plan.

Want to see a diagram about how a deferred-payment gift annuity works? View the diagram of this gift

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