Can You Fund a Charitable Gift Annuity With an IRA?

Individual Retirement Accounts (IRAs) often represent a substantial portion of an individual’s wealth. This prompts questions about using these pre-tax assets for charitable purposes. Funding a Charitable Gift Annuity (CGA) directly from an IRA is possible, though specific conditions and regulations apply. This article explains how to fund a CGA with an IRA, helping donors align financial planning with charitable intentions.

Charitable Gift Annuities Explained

A Charitable Gift Annuity (CGA) is a contract between a donor and a qualified charitable organization. The donor irrevocably transfers assets to the charity. In return, the charity commits to paying a fixed income stream to the donor, or to the donor and another designated annuitant, for their lifetimes.

CGAs are “split-interest” gifts, combining a charitable donation with a financial return. Fixed payments are typically determined by the donor’s age, with older donors generally receiving higher payout rates. Upon the death of the last annuitant, the remaining balance of the gift is retained by the charity.

Qualified Charitable Distributions and Their Role

A Qualified Charitable Distribution (QCD) allows individuals aged 70½ or older to make tax-free donations directly from their Individual Retirement Accounts to eligible charities. Funds are transferred from the IRA custodian to the charity, bypassing the donor’s income and avoiding taxation.

QCDs can satisfy all or part of an individual’s Required Minimum Distributions (RMDs) for the year. For 2025, the annual maximum QCD is $108,000 per person.

The charity receiving a QCD must be a qualified 501(c)(3) organization. Donor-advised funds or private foundations are generally not eligible. Since the QCD is excluded from taxable income, the donor cannot also claim a charitable income tax deduction for the same amount.

Special Rules for Funding a Charitable Gift Annuity with an IRA

Funding a Charitable Gift Annuity (CGA) directly from an IRA using a Qualified Charitable Distribution (QCD) is a specific provision enabled by recent legislation. This is a one-time, irrevocable election available to IRA owners aged 70½ or older. For 2025, the maximum amount transferable as a one-time QCD for a CGA is $54,000. This special limit is part of the overall annual QCD limit, so total QCDs, including the CGA amount, cannot exceed the general annual maximum.

The annuity established must meet specific requirements. Payments from the CGA must begin within one year of the transfer; deferred annuities are not permitted. Payments can only be made to the IRA owner, or to the IRA owner and their spouse, for their lifetimes. The annuity must also be non-assignable.

This specialized QCD for a CGA is a lifetime election, usable only once. If the full $54,000 limit is not used, the remaining amount cannot be carried forward or used for another IRA-funded CGA. The charity must be an eligible 501(c)(3) public charity.

Tax Implications of Annuity Payments

The tax treatment of annuity payments from an IRA-funded Charitable Gift Annuity differs from CGAs funded with after-tax assets. When a CGA is funded directly from an IRA as a Qualified Charitable Distribution (QCD), the initial transfer is excluded from the donor’s taxable income. However, all subsequent annuity payments received are fully taxable as ordinary income.

There is no “exclusion ratio” or tax-free return of principal for these payments, unlike CGAs funded with cash or appreciated property. The entire annuity payment is taxable because the original funds came from pre-tax IRA accounts. While the initial QCD satisfies a Required Minimum Distribution (RMD) for the year of transfer, ongoing annuity payments do not qualify as QCDs and do not reduce future RMD obligations.

The charitable organization issuing the annuity reports these payments to the Internal Revenue Service (IRS). Donors receive a Form 1099-R from the charity each year, detailing the gross distribution and taxable amount of the annuity payments.

Establishing an IRA-Funded Charitable Gift Annuity

Establishing an IRA-funded Charitable Gift Annuity requires coordination between the donor, the chosen charity, and the IRA custodian. First, the donor contacts the charitable organization to confirm its eligibility to accept IRA-funded CGAs and its procedures.

Once the charity confirms readiness, the donor instructs their IRA custodian to make a direct transfer of funds to the charity. This direct transfer is crucial for the transaction to qualify as a Qualified Charitable Distribution. The IRA custodian will require specific instructions and forms to initiate this transfer.

The charity then provides a Charitable Gift Annuity agreement, outlining the terms of the annuity payments. This agreement details the fixed payment amount, schedule, and annuitants. After the transfer and agreement, the charity begins making the specified annuity payments.