Jerry is 50 years old, and is interested in establishing an income stream for retirement that will supplement his 401(k) account. He is still in his high-earning years and can utilize a current charitable income tax deduction to reduce his income taxes. He is also interested in supporting Wheaton College.
Jerry can establish a deferred payment charitable gift annuity with Wheaton College, in which he funds the annuity now and receives a current charitable income tax deduction, but the annuity payments are deferred until Jerry's 65th birthday, his anticipated retirement date.
Based upon his age of 50 and the deferral of his annuity payments for 15 years, Jerry is eligible for a Wheaton College deferred payment gift annuity, paying an annuity rate of 9.5%. If Jerry funds the annuity with $10,000, he will receive an annual annuity of $950 for as long as he lives, with payments beginning on his 65th birthday. Of that $950, $598 will be ordinary income, while $352 will be tax-free income (until the year 2045). In addition, Jerry can claim $2,988 as a current federal charitable income tax deduction.
If Jerry chooses to include his wife, Jean, also age 50, on the annuity payments, they are eligible for a Wheaton College two-life deferred payment gift annuity paying an annuity rate of 8.4%. By funding this annuity with $10,000, Wheaton College provides annual annuity payments of $840 for as long as either spouse is living. Of that $840, $510 is ordinary income, while $330 is tax-free income (until the year 2050). Jerry and Jean are also able to claim a current federal charitable income tax deduction of $1,782.
This deferred payment charitable gift annuity can also be funded with appreciated stock instead of cash. By utilizing stock that has appreciated in value and has been owned for longer than one year, Jerry and Jean significantly reduce the federal and state capital gains taxes that they would have incurred had they sold the stock themselves.