A friend asked me to look up some information for him.

A charitable gift annuity is a one-time gift as a qualified charitable distribution from your IRA, counted against the QCD limit for the
year. There is no deduction for the charitable contribution but the
QCD is excluded from taxable income. It counts against required minimum distribution if the taxpayer is subject to RMDs.

https://www.kiplinger.com/taxes/charitable-gift-annuities-benefit-yourself-and-your-favorite-charity

This article talks about contributing to the annuity with post-taxed
monies beyond the one-time gift. There is a charitable contribution
deduction for the portion the benefits the charity. The tax advantage is
that a portion of the distribution from the annuity counts as return of principle and therefore not taxable income... after you've already taken
the charitable deduction.

I don't understand how these calculations are made. When contributing to
the annuity, a portion is a gift but another portion is principle that
may be returned if it doesn't earn enough for the fixed payments? Or can
a portion of the deduction for the contribution be clawed back?

Funding it from post-taxed monies allows you to control when you begin receiving the distribution. Funding it with the one-time gift, the
distribution begins immediately, and is fully taxed as ordinary income. It's unclear to me what portion counts of return of principle.

https://www.schwab.com/learn/story/how-charitable-gift-annuities-work

There are two similar concepts, a charitable remainder trust and a
charitable remainder ANUITY trust. I haven't looked up how the rules
apply to different situations in which these might be considered
advantageous to the taxpayer.

https://www.investopedia.com/terms/c/charitable-remainder-annuity-trust.asp

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On Tue, 18 Jun 2024 11:19:16 EDT, "Adam H. Kerman"
<[email protected]> wrote:

A friend asked me to look up some information for him.

A charitable gift annuity is a one-time gift as a qualified charitable >distribution from your IRA, counted against the QCD limit for the
year. There is no deduction for the charitable contribution but the
QCD is excluded from taxable income. It counts against required minimum >distribution if the taxpayer is subject to RMDs.

https://www.kiplinger.com/taxes/charitable-gift-annuities-benefit-yourself-and-your-favorite-charity

This article talks about contributing to the annuity with post-taxed
monies beyond the one-time gift. There is a charitable contribution
deduction for the portion the benefits the charity. The tax advantage is
that a portion of the distribution from the annuity counts as return of >principle and therefore not taxable income... after you've already taken
the charitable deduction.

I don't understand how these calculations are made. When contributing to
the annuity, a portion is a gift but another portion is principle that
may be returned if it doesn't earn enough for the fixed payments? Or can
a portion of the deduction for the contribution be clawed back?

Funding it from post-taxed monies allows you to control when you begin >receiving the distribution. Funding it with the one-time gift, the >distribution begins immediately, and is fully taxed as ordinary income. It's >unclear to me what portion counts of return of principle.

https://www.schwab.com/learn/story/how-charitable-gift-annuities-work

I read the Kiplinger article. It provided what I would certainly
characterize as a VERY high-level explanation of this transaction.
The way I would break it down is you start with an IRA. You make a
gift from the IRA to the charity. This reduces how much you may
use for QCDs for the rest of the year. You don't count the gift in
income as a distribution. You don't get a charitable deduction.
The charity will pay an amount annually based on the contribution
and the ACGA payout rate. The payout will be low enough that,
actuarially speaking, a portion will not be used. I think this is
to meet the IRS anti-abuse rules. That's why the payments are
lower than if you purchased an SPIA from an insurance company. The
charity will allocate a portion of the payout to principal and the
balance to income each year based on life expectancy and assumed
interest rate.
--
Bruce Cantor, CPA, JD
Admitted in Colorado

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Bruce Cantor, CPA, JD <[email protected]> wrote:

Tue, 18 Jun 2024 11:19:16 EDT, Adam H. Kerman <[email protected]> wrote:

A friend asked me to look up some information for him.

A charitable gift annuity is a one-time gift as a qualified charitable >>distribution from your IRA, counted against the QCD limit for the
year. There is no deduction for the charitable contribution but the
QCD is excluded from taxable income. It counts against required minimum >>distribution if the taxpayer is subject to RMDs.

https://www.kiplinger.com/taxes/charitable-gift-annuities-benefit-yourself-and-your-favorite-charity

This article talks about contributing to the annuity with post-taxed
monies beyond the one-time gift. There is a charitable contribution >>deduction for the portion the benefits the charity. The tax advantage is >>that a portion of the distribution from the annuity counts as return of >>principle and therefore not taxable income... after you've already taken >>the charitable deduction.

I don't understand how these calculations are made. When contributing to >>the annuity, a portion is a gift but another portion is principle that
may be returned if it doesn't earn enough for the fixed payments? Or can
a portion of the deduction for the contribution be clawed back?

Funding it from post-taxed monies allows you to control when you begin >>receiving the distribution. Funding it with the one-time gift, the >>distribution begins immediately, and is fully taxed as ordinary income. It's >>unclear to me what portion counts of return of principle.

https://www.schwab.com/learn/story/how-charitable-gift-annuities-work

I read the Kiplinger article. It provided what I would certainly
characterize as a VERY high-level explanation of this transaction.
The way I would break it down is you start with an IRA. You make a
gift from the IRA to the charity. This reduces how much you may
use for QCDs for the rest of the year. You don't count the gift in
income as a distribution. You don't get a charitable deduction.
The charity will pay an amount annually based on the contribution
and the ACGA payout rate. The payout will be low enough that,
actuarially speaking, a portion will not be used. I think this is
to meet the IRS anti-abuse rules. That's why the payments are
lower than if you purchased an SPIA from an insurance company. The
charity will allocate a portion of the payout to principal and the
balance to income each year based on life expectancy and assumed
interest rate.

What about the Schwab article, which discusses contributions with
post-taxed monies? You have taken the charitable deduction. With return
of principle, must the charitable deduction be clawed back, or is the allocation between charitable contribution and principle to be returned
in future made at the time of contracting for the annuity?

That isn't explained.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>

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