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Charitable Gift Annuity

A charitable gift annuity provides fixed payments to you for life in exchange for your gift of cash or securities to Carnegie Mellon University. Gift annuities are easy to establish and the payments you receive are backed by the general resources of Carnegie Mellon University for your lifetime.  

charitable gift annuity could be right for you if:

  • You want to maintain or increase your cash flow, now even more attractive with the new – and higher - annuity rates.
  • You want the security of fixed, dependable payments for life.
  • You want to reduce income tax or capital gains tax.
  • You are seeking income that may be partially tax-free.
  • You are considering a gift in an amount equal to $25,000 or more.
  • You are at least 65 years of age.
 

 

Features of Charitable Gift Annuities

A simple contract
A charitable gift annuity is a simple arrangement between you and Carnegie Mellon University that requires a one or two page agreement. There are minimal or no costs to you depending upon the asset transferred to establish the arrangement and no costs at all to maintain it.  

Fixed payments for life
In exchange for your irrevocable gift of cash, securities, or other assets, Carnegie Mellon will pay you a fixed amount of income each year for life. 

  • Payments last for your lifetime. You cannot outlive your payments.
  • Payments are predictable. Your payments will not be affected by investment performance or market conditions.  You will get the same amount of income each year. 
  • Payments are very secure. They are backed by the general resources of Carnegie Mellon University, not just by the assets you donate.

Tax-advantaged payments
Part of each payment to you will likely be tax-free for many years. This tax-free portion may make the payments more valuable than an equal amount of fully taxable income. Cash gifts increase the amount of the payment that is tax-free as opposed to gifts of stock or other appreciated property.

Consideration on who can receive payments
You decide who will get the payments from your gift annuity. Usually, a donor will designate the donor or the donor and the donor's spouse as the receipients of the income payments. You can, however, select any one or two people to receive the payments from your gift annuity. For example, you may wish to provide income for parents, a sibling, or a faithful employee. 

Payout rate depends on age
The older you are when you make your gift, the greater the payment rate you will receive. If you choose other people to receive the payments from your gift annuity, their ages at the time of your gift will determine their payment rate. Carnegie Mellon requires a minimum age of 65 for payment recipients.

Sample Annuity Rates for Gift Amount of $25,000

Age Payment Rate Annuity Deduction

65

4.2%

$1,050

$7,149

70

4.7%

$1,175

$8,838

75

5.4%

$1,350

$10,438

80

6.5%

$1,625

$11,642

Tax benefits
You will earn an immediate income tax charitable deduction in the year of your gift, providing tax savings if you itemize. The amount of this deduction will depend on several factors. If you cannot use the entire deduction that year, you may carry forward all unused deduction for up to five additional years. 

If you establish the annuity with appreciated property such as stock, you will avoid tax on some of your capital gain in the property. If you are the payment recipient of your gift annuity, you will be able to pay the tax on the rest of your capital gain in installments over many years.

By removing the assets from your estate, you may also reduce future income tax, estate tax and probate costs. The amount of these savings will depend on the size of your estate and on estate tax law in force at the time your estate is settled.

Assets to consider
Cash currently held in a savings account, a bank CD, or a money-market fund makes an excellent funding asset. Usually, a gift annuity will provide you with more income than any of these investments.

Securities, especially highly-appreciated securities that you have owned for one year or more, are also an excellent funding asset. Transferring these assets to Carnegie Mellon in exchange for a gift annuity will allow you increase your cash flow and avoid substantial capital gains tax.

Example

Suzanne Wilkinson is a 71 year-old widow. She would like to make a significant gift to Carnegie Mellon University, but she is dependent on the income produced by her investments. One of these investments is stock in XYZ Widget Corporation that she and her late husband purchased many years ago for $3,000.

Her stock is now worth $10,000 but provides little income - about $126 per year after tax. Suzanne is reluctant to sell her XYZ Widget stock to reinvest in higher yielding assets because she will have to pay $1,400 in capital gains tax in the process. After taxes, she will have only $8,600 to reinvest.

Suzanne is pleased to learn that she can make a significant gift to Carnegie Mellon University and increase her cash flow by giving her XYZ Widget stock to Carnegie Mellon in exchange for a gift annuity. She can also avoid and defer capital gains taxes, and will receive an income tax deduction that may provide additional tax savings.

  Tax result Cash flow before tax Cash flow
after tax
(37​% tax rate)

Suzanne keeps her stock

None

$200

$126

Suzanne sells and reinvests for 4.0% yield

Owes $1,400 capital gains tax

$344

$217

Suzanne funds a 4.8% gift annuity

$3,695* income tax deduction
Avoid tax on $2,586* of capital gain

$480

$397

*Deduction amount and capital gains tax avoided may vary depending on the timing of the gift.