Charitable annuities: For that warm and fuzzy feeling in retirement

For most people, the benefits received from a charitable donation are simply the "warm fuzzies" and a tax deduction. However if you happen to be sitting on some extra cash earning a paltry 3% in a CD then an annuity could net you an even greater return!

A charitable gift annuity is a vehicle for giving to charity which also provides income for life to the donor and their spouse based on a set rate tied to your age. While this may sound too good to be true, charitable gift annuities have been around for many years and are used by many respectable charities.

Charitable gift annuities can be set up with almost any charity and will provide payments back to the donor on either a quarterly, annual or semi-annual basis. These payments don't fluctuate with the market and will last your entire life, even if the return surpasses your original gift amount.

The rate for charitable gift annuities is set every year in July based on the discount rate and the longer you've been living the higher your interest rate is. Currently a 55-year old can earn 5.5% for life while an 85-year old can net a 9.5% return on the principle donation. These rates are based on a one-life annuity and will be slightly lower on a two life plan.On top of the return you receive from the annuity, there are numerous other benefits. An annuity provides several tax benefits including an initial deduction for the gift which sets up the annuity. Part of the income you receive each year will also be tax free, netting you even more cash for your retirement days.

Other benefits will vary between charities and on the amount of your gift and range from scholarship naming, donor recognition or a visit with the president.

The rates for charitable gift annuities will drop at the end of June by 8/10ths of a point thanks to Mr. Bernanke, so if you are interested in using one as a vehicle for retirement and charitable giving you should act soon. Many charities require a minimum gift to set up an annuity with an industry standard of $10,000, however other charities will go lower to $5,000.

A gift annuity is easy to set up and shouldn't cost you anything as the fees will be paid by the charity you set the gift up with. The rates are the same from charity to charity so the only reason you need to shop around is to find the charity which matches your interests and makes the best use of your dollars.

Several other charitable gifts can provide income or pass wealth on to your heirs including Charitable Remainder Annuity trusts (CRAT), Charitable Remainder Unitrusts (CRUT), and Lead Unitrusts. Each of these provides different benefits requiring higher contributions, lawyers and complexity. The additional benefits include a fixed dollar return(CRAT), a variable return tied to the performance of the trust (CRUT), and the ability to skip a generation and pass on wealth to your grandkids (Lead Unitrust).

So if you need to provide for yourself or you don't trust your children but still want to provide for your grandkids the best place to invest for retirement may be with your favorite charity.

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