A charitable gift annuity (CGA) is a deal you strike directly with a charity: you make an irrevocable gift of cash or securities, and the charity promises to pay you a fixed amount for the rest of your life. It looks like an annuity, and part of it is — but it is equally a gift, and that dual nature drives everything about how it's priced, taxed, and protected.
This article explains the mechanics, the partial tax deduction, how the payments are taxed, and — because the name causes real confusion — how a CGA differs from the commercial annuities compared elsewhere on this site, like the income annuities on the live SPIA estimates page.
How a Charitable Gift Annuity Works
You transfer assets — usually cash or appreciated stock — to a charity you want to support. In exchange, the charity contractually promises fixed payments for one life or two (a couple, typically), starting immediately or deferred to a future date. When the last annuitant dies, payments stop and the charity keeps what remains of the gift. That remainder, called the residuum, is the point of the arrangement.
The payout rate is set by the charity, and most charities follow the maximum rates suggested by the American Council on Gift Annuities (ACGA). Those suggested rates are designed so that, on average, roughly half of the original gift ultimately remains for the charity. Rates rise with age — an 85-year-old receives a higher payout rate than a 65-year-old — and two-life annuities pay less than single-life ones, because the payments are expected to run longer.
Two structural points matter before anything else. First, the issuer is a charity, not an insurance company: your payments are a general obligation backed by the charity's assets, with no state guaranty association behind them. Second, the gift is irrevocable — unlike a deferred commercial annuity, there is no cash value to surrender and no free-withdrawal provision. For how commercial contracts handle those features, see annuity payout options and how surrender charges work.
The Charitable Deduction
Because part of your transfer is a gift, you get a charitable income-tax deduction in the year you fund the CGA — but only for the gift portion, not the whole transfer. The deduction equals the amount transferred minus the present value of the annuity payments you're expected to receive, calculated with IRS actuarial tables and the Section 7520 interest rate in effect for the month of the gift (or one of the two prior months, at your election).
- You must itemize. If you take the standard deduction, the charitable deduction provides no current tax benefit — though the payment-taxation advantages below still apply.
- The gift portion must be real. To qualify as a charitable gift annuity under the tax rules, the gift value generally must exceed 10% of the amount transferred — a test the charity's calculation software checks before issuing the contract.
- Older annuitants and deferred start dates produce larger deductions. The shorter or later the expected payment stream, the more of your transfer counts as gift.
How the Payments Are Taxed
CGA payments use the same basic logic as an annuitized commercial contract: each payment during your actuarial life expectancy is split into pieces, and the split is fixed at issue. The mechanics mirror the exclusion ratio that governs annuitized payments, with one addition for appreciated assets:
- Funded with cash: part of each payment is a tax-free return of your investment and the rest is ordinary income. Once you outlive your life expectancy and fully recover your investment, payments become 100% ordinary income.
- Funded with appreciated securities: the gain attributable to the gift portion escapes capital gains tax entirely. The gain attributable to the annuity portion is still taxed — but if you are the annuitant, you report it ratably over your life expectancy instead of all at once, so each payment carries a capital-gain slice alongside the tax-free and ordinary-income slices.
- Reporting: the charity sends you a Form 1099-R each year showing the breakdown — see our guide to Form 1099-R for annuities for what each box means.
A newer option: SECURE 2.0 allows a one-time election, at age 70½ or older, to fund a CGA with a qualified charitable distribution (QCD) from an IRA, capped at an inflation-indexed dollar limit ($50,000 when the provision took effect; check the current IRS figure). The QCD is excluded from your income and counts toward your required minimum distribution — but you get no charitable deduction, and every payment from an IRA-funded CGA is fully taxable as ordinary income.
CGA vs Commercial Annuity, Side by Side
| Feature | Charitable gift annuity | Commercial immediate annuity (SPIA) |
|---|---|---|
| Issuer | A charity | A licensed insurance company |
| Payout rate | Set from ACGA suggested rates; intentionally below market so roughly half the gift remains for the charity | Competitively priced — generally higher income for the same premium |
| Backing | The charity's general assets only | Insurer reserves, plus state guaranty association coverage up to state limits |
| Charitable deduction | Yes — for the gift portion, if you itemize | No |
| Payment taxation (after-tax money) | Split among tax-free, ordinary income, and (for appreciated assets) capital gain over life expectancy | Split between tax-free return of premium and ordinary income via the exclusion ratio |
| Value to heirs | None — the charity keeps the residuum | Optional refund or period-certain features can continue value to a beneficiary |
Which One Fits Which Job
The honest framing: a CGA is philanthropy with an income feature, not an income product with a tax perk. If your goal is to support a charity you already care about and receive dependable payments plus a deduction along the way, a CGA does that elegantly — especially when funded with highly appreciated stock you'd otherwise pay capital gains tax to sell.
If your goal is maximum guaranteed lifetime income from a given sum, a commercial income annuity will nearly always pay more, because no part of your premium is being given away. Compare what insurers currently offer on the live SPIA income estimates page before assuming the CGA rate is the best available — many donors are surprised by the gap. For the broader tax picture on the commercial side, see how annuities are taxed and how non-qualified annuities work.
Whichever direction you lean, check the issuer's financial strength. For a CGA that means reviewing the charity's financial statements and gift-annuity reserve fund; for a commercial annuity it means the insurer's ratings — our ranking of A-rated annuity companies is a starting point. A CGA promise is only as good as the charity behind it.
Next Step
If you're weighing a CGA against a commercial annuity, get both numbers on the table: the charity's offered rate and deduction illustration on one side, and current commercial payout estimates for your age on the other. A tax professional can model the deduction and payment taxation against your actual bracket — the itemizing question alone changes the math considerably.
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