The Deferred-Payment Gift Annuity
This type of gift might appeal to you if you want to support Eastern Michigan University, you're 40 to 60 years old, have a high income, need to benefit now from a current tax deduction, and are interested in augmenting potential retirement income.
The deferred-payment gift annuity involves the current transfer of cash or marketable securities in exchange for which Eastern Michigan University agrees to pay 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.
You realize 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.
For example, Mr. and Mrs. Cullen, both 45, wish to supplement their retirement income with deferred-payment gift annuities. After consulting with their own financial advisors and a member of our staff, they decide to contribute $10,000 each year for the next 20 years to the Eastern Michigan University gift annuity program.
The tax and financial benefits of this arrangement to the Cullens are as follows:
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Under the deferred gift arrangement, the Cullens are entitled to a charitable deduction for each annual contribution. While the deductions vary from year to year, the total charitable deduction over the 10-year period, based on current IRS mortality and interest assumptions, will be approximately $17,300 (17.3% of the amount they contribute over the 10-year period).
- At the age of 65, when retirement income becomes important, the Cullens will receive $18,010 each year from their well-planned annuity. In addition, a portion of those payments will be excludable from their taxable income for their life expectancy.
- Unlike a qualified retirement plan, there are no upper or lower limits to their contributions or other restrictive requirements on the design of the plan.
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