Most retirees who donate to charity write a check and never consider whether their IRA could serve both generosity and income at once. A financial vehicle lets you support the causes you love while collecting fixed payments for the rest of your life.
Charles Schwab recently outlined how the SECURE 2.0 Act lets IRA owners aged 70½ and older fund a charitable gift annuity. The arrangement converts pretax retirement dollars into a contract that pays fixed income for life while supporting a qualified nonprofit.
CGA payout rates are now at their highest level in more than a decade, making the economics of this approach increasingly attractive. A Fidelity Charitable study found that 78% of retirees and pre-retirees call charitable giving a significant part of their lives. Yet only 32% are aware that they can donate appreciated assets like stocks, the firm reported in 2024.
How SECURE 2.0 unlocks IRA-funded charitable gift annuities
Before the SECURE 2.0 Act took effect in 2023, qualified charitable distributions (QCDs) from IRAs could only go directly to nonprofits with no benefit returning to the donor. The new law permits a once-in-a-lifetime QCD of up to $54,000 in 2025 to one or more CGAs, as detailed in Schwab’s guidance.
The distribution flows directly from the IRA custodian to a 501(c)(3) charity, which then issues a lifetime income contract to the donor. That amount counts against the annual QCD ceiling of $108,000 in 2025, rising to $111,000 in 2026 according to IRS Notice 2025-67, and can satisfy all or part of the required minimum distribution under IRC §408(d)(8).
“Retirement is an exciting new chapter in life that creates opportunities for retirees to spend more time and resources in support of the meaningful causes they care about, but it also has implications for charities and financial advisers. While the intent and desire to make a difference are strong with retiring donors, there is a knowledge gap around tax-smart strategies,” said Amy Pirozzolo, head of donor engagement at Fidelity Charitable.
Sarah Brenner, JD, director of retirement education at Ed Slott & Co., noted this strategy appeals to many IRA owners because charities already offer CGAs that can now be funded with pretax dollars. Charitable remainder trusts carry higher setup and administration costs that rarely justify the limited QCD amount, Brenner explained.
CGA payout rates sit at near 16-year highs, boosting appeal for retirees
The financial appeal of CGAs has grown substantially, as payout rates have climbed alongside the Federal Reserve’s interest rate increases since 2022. The American Council on Gift Annuities raised recommended payouts in January 2024 by roughly 0.4 percentage points and confirmed rates would hold through 2025.
Key CGA rate benchmarks by donor age
- A 70-year-old donor can expect a suggested maximum single-life payout rate of about 6.3%, based on current ACGA rate schedules.
- A 75-year-old would receive roughly 7.0%, meaning a $50,000 gift could generate about $3,500 in fixed annual income for life.
- An 85-year-old could receive about 9.1%, reflecting the shorter life expectancy factored into the ACGA’s calculation methodology, according to ACGA.
Those rates are lower than commercial annuities from insurance companies because CGAs are split-interest vehicles that target a 50% charitable remainder. For retirees already planning to donate, however, the income layer adds financial value that a standard charitable gift simply cannot deliver.
SolStock/Getty Images
Tax treatment differs sharply based on how you fund the annuity
The most consequential decision for CGA donors is choosing between after-tax assets and IRA dollars as the funding source. Cash-funded CGAs may qualify for an itemized deduction of up to 60% of adjusted gross income under current 2025 IRS limits.
That deduction landscape shifts in 2026, when itemized charitable contributions of any kind will only be deductible above 0.5% of adjusted gross income (AGI) under new federal tax legislation. For someone with $100,000 in AGI donating $2,000 to the charitable portion, only $1,500 would be deductible, Schwab’s analysis illustrated.
The IRA-funded route works differently in ways every donor should understand before transferring pretax retirement dollars to a charity. The QCD itself is excluded from taxable income, so the donor adds nothing to adjusted gross income but receives no separate charitable deduction.
More Personal Finance:
- Fidelity has a warning for anyone who left a 401(k) at an old job
- Living trusts: what they do and who needs one
- Fidelity sounds alarm on 401(k)s, IRAs
Payments from an IRA-funded CGA are fully taxable as ordinary income, unlike after-tax CGAs, where part qualifies as tax-free principal return. Another distinction lies in how each approach affects ongoing tax exposure.
Because IRA-funded CGAs keep the initial distribution out of adjusted gross income, they can affect thresholds used in income calculations, such as Social Security taxation or Medicare premium brackets.
Cash-funded annuities, by contrast, may increase reported income in the year of donation despite offering a deduction, creating a different tax profile over time even when the charitable outcome is similar.
Critical limitations retirees face before committing IRA funds to a CGA
The IRA-to-CGA pathway imposes several restrictions that differ from other charitable strategies, and overlooking any one of them can create complications. The most important constraint is that this is a once-in-a-lifetime election available only within a single tax year, IRS rules stipulate.
Key CGA rules and constraints
- Lifetime cap: Total QCDs to CGAs cannot exceed $54,000 in 2025, rising to $55,000 in 2026, according to IRS inflation adjustments.
- Immediate payouts: IRA-funded CGAs must begin fixed payments of at least 5% within one year of funding.
- Irrevocable: Once assets are transferred to the charity, the donation cannot be reversed, unlike commercial annuities that may allow termination with applicable fees.
- Counterparty risk: CGA payments are backed only by the nonprofit’s financial health, not by any government guarantee or insurance fund, Schwab cautioned.
Garrett Harbron, JD, CFA, CFP, head of advised wealth management strategies at Vanguard, stressed that no single giving approach fits every retiree. Donors should evaluate financial goals, tax circumstances, and philanthropic objectives before choosing a strategy, he noted in Vanguard’s 2025 research.
What the IRA-to-CGA strategy means for your retirement income plan
For retirees facing RMDs that push them into higher tax brackets or trigger Medicare surcharges, the IRA-funded CGA efficiently redirects pretax dollars. Directing IRA withdrawals to charity through a QCD can reduce Social Security taxation and limit Medicare Part B premium surcharges, Vanguard found.
A 75-year-old contributing $50,000 from an IRA at a 7% rate would receive roughly $3,500 in fixed annual payments for life. That same $50,000 reduces the current year’s RMD obligation, as shown in examples the American Red Cross published in planned giving materials.
Mark Luscombe, J.D., LL.M, CPA, principal federal tax analyst at Wolters Kluwer Tax & Accounting, called the one-time QCD to a CGA an important planning tool. The provision is especially valuable for taxpayers who itemize deductions and face RMDs as new charitable rules take effect, hewrote in CPA Practice Advisor.
Related: Schwab unlocks a stock strategy hiding in plain sight
#Schwab #maps #IRA #move #funds #charity #pays