Deferred Payment Gift Annuity
A deferred payment gift annuity (DPGA) provides a reliable, fixed income for the life of the donor or another designated beneficiary beginning at age 60 or older. It is similar to a charitable gift annuity except the beneficiary's income payments are deferred to a later date. That provides a higher charitable tax deduction when the gift is made and locks in a higher payout rate. For example, a 50-year-old donor agrees to make a gift now, but defers receiving payments until she/he reaches age 65 when it will serve as supplemental retirement income. The deferral of payments locks in a higher fixed rate.
The gift assets are commingled with Smith's endowment and are backed by the total assets of the college. There are no management fees or investment worries for donors. The minimum gift amount is $10,000. Annuitants must be at least age 60 when payments begin.
Annuity payments are determined by three things:
- Age of the beneficiary at the time of the agreement
- Age of the beneficiary when payments begin
- Length of deferral (the longer the deferral, the higher the rate)
Deferred payment annuities based on two people are also available, but the rates are generally lower.
|Current Age||Deferring to Age||Current Rate of Income|
*Contact the Office of Planned Gifts & Bequests for more detailed information. When prevailing interest rates are low, some rates displayed here may need to be adjusted downward in order to qualify you for a tax deduction that complies with IRS regulations.
A substantial portion of each payment is tax-free. Even though the beneficiary does not start receiving payments until a preselected future date, a portion of the gift is immediately deductible for federal income tax purposes on an itemized return. Capital gains are reduced and can be reported over a number of years (if the donor is also the income beneficiary.)
Before leaving her position as vice president of a university, Bonnie '67 reviewed her financial plans. She had recently downsized from her big family house to a smaller one and needed a tax deduction to help balance her capital gains. She also needed to add a fixed income component to her retirement portfolio, and she wanted to find a way to include Smith in her long-term financial plan.
The solution: Bonnie made a gift to Smith through a deferred payment gift annuity. She was able to claim a charitable income tax deduction and lock in a high fixed annuity payment to begin ten years later, at age 65. She was pleased to be recognized as a generous donor in her 35th reunion year.
Bonnie could have designated her gift for a particular purpose at Smith, but she preferred to leave it unrestricted, knowing that the college will not use the gift principal until after her death, at which time there may well be new priorities and needs.
"Smith provided me with scholarship and loan funds that enabled me to attend college. Most important, it provided me with a first class education and a 'passport' to the corps of educated citizenry that is important even today. I want to see Smith flourish into the next century. A deferred gift annuity made sense for me as a way to augment my retirement income, gain an income tax deduction and give back to Smith."