How to Use a Variable Annuity to Fund a Charitable Gift Annuity
A charitable gift annuity is a hybrid agreement allowing you, the donor, to give a designated asset or dollar amount to a charity. In return for the gift, you will receive an immediate annuity that creates an income stream for the remainder of your (and your spouse's) life. This allows you to fulfill philanthropic desires, gain a tax deduction and retain an income source. You can use a variable annuity, an insurance product that allows you to save money tax-deferred toward retirement, to fund a charitable remainder annuity.
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Instructions
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Confirm that the charity you are giving the donation to is a recognized 501(c)(3) with the Internal Revenue Service. Make sure that the charity is financially solvent to uphold its end of the annuity agreement and make payments to you from the immediate annuity. If this is a small charity, consider having an immediate annuity purchased on your behalf with an established, highly rated insurance company.
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Arrange with the charity what the donation amount will be and what the annuity amount will be. Once these amounts are established, you will not be able to change the annuity payments.
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Confirm with the American Council of Gift Annuities at Acga-web.org what the rate of return will be on the annuity. This schedule is the norm for all gift annuities.
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Create a written agreement with the charity to make the gift in exchange for the immediate annuity, with the rate of return and payments specified.
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Liquidate the variable annuity and donate the proceeds to the charity. This process should immediately start your income stream.
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File IRS Form 1099-R with your taxes regarding the annuity liquidation, donation and income received from the immediate annuity.
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Tips & Warnings
Some charities will not require you to liquidate a non-qualified variable annuity prior to making the donation. You may be able to change the owner of the policy instead and gain a larger tax benefit since you will not be adding all earnings to your adjusted gross income. Qualified annuities must be liquidated as per IRS requirements. Check with each charity and a qualified tax adviser regarding your specific annuity and financial situation.
