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Higher Gift Annuity Rates

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Recent annuity rate increases could mean higher fixed payments for life.

On November 23, 2022, the American Council on Gift Annuities (ACGA) announced maximum annuity rate increases would go into effect January 1, 2023, replacing rates that became effective July 1, 2022. The ACGA’s decision to increase suggested maximum gift annuity rates was triggered by the sharp rise in interest rates that we have seen since March 2022.

For most gift annuities, the new rates are 0.6% - 0.7% higher than the previous rates. If you defer the start of payments for a year or more, the increase is even greater.

Ordinarily, you would expect a higher annuity rate to result in a lower charitable deduction. However, the new deductions made available in January 2023 are about the same as in July 2022, despite the higher ACGA rates. This is because, since the second half of 2022, there has been a spike in the interest rate used to compute gift annuity deductions. A negative effect of this interest rate increase is a reduction in the tax-free portion of annuity payments.

The combination of higher annuity rates and substantial deductions, however, makes a charitable gift annuity even more attractive if you’re seeking to make a gift and receive fixed payments for life.