Earning Income by Making a Gift

How does a retiree replace the interest income from a certificate of deposit paying more than 5% when the rate on a new CD is 1.3%?

One solution: Donating the principal to a nonprofit in the form of a “charitable gift annuity” in exchange for lifetime fixed annuity payments. The interest rate is determined by the donor’s age; right now, a charitable-gift annuity set up by a 65-year-old couple would yield 4.7%. For a 75-year-old couple, the rate rises to 5.7%. The rates are even better for single donors: 5.3% at 65 and 6.5% at 75.

It is a good way for a donor to get an upfront tax deduction, to help the charity you care about and get a predictable stream of income for the rest of your life, says Neil Kawashima, a partner at McDermott Will & Emery in Chicago.

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