Joanne, age 70, wants to increase her retirement income and to support Wheaton College at the same time.
Based upon her age, Joanne is eligible for a Wheaton College gift annuity that pays an annuity rate of 5.1%. In exchange for her cash gift of $10,000, Wheaton will provide Joanne with an annuity of $510 per year for as long as she is living. Of that $510, $106.59 will be treated as ordinary income and the remaining $403.41 as tax-free income (until year 2027). In addition, Joanne can claim a current Federal charitable income tax deduction of $3,582.16.
Instead of using cash to fund her gift annuity, Joanne could fund her gift annuity with appreciated stock and receive additional tax benefits. By funding her gift annuity with stock that has appreciated in value and that has been owned for longer than one year, Joanne significantly reduces the federal and state capital gains taxes that she would have incurred had she sold the stock herself.