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 $103,594 (about 41% 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

* The information contained herein is offered for general informational and educational purposes. The figures cited are accurate at the time of writing. State law may affect the results illustrated. This is not legal advice. Any prospective donor should seek the advice of a qualified estate and/or tax professional to determine the consequences of their gift. Annuities are subject to regulation by the State of California. Payments under such agreements, however, are not protected or otherwise guaranteed by any government agency or the California Life and Health Insurance Guarantee Association.

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