Donors can make a charitable gift now but defer annuity payments to start years later. By Susan B. Garland, Contributing Editor From Kiplinger's Retirement Report, June 2014 Charitable gift annuities have long been a popular way for older retirees with philanthropic intent to create a lifetime income stream while getting a nice tax deduction. Today, a new twist on the gift annuity is attracting younger people who have yet to retire.See Also: ASK KIM: Good Reasons to Buy a Deferred Income Annuity Most charitable gift annuities provide monthly payouts that start immediately after a donor makes the contribution. About 75% of donors who set up immediate annuities are older than age 75 when they make the gift, according to a 2013 survey of charities by the American Council on Gift Annuities. Meanwhile, the council notes a growing interest in "deferred payment" annuities. A donor, say age 55, makes a gift but defers payment until a specific later date, perhaps five or ten years away. Half of these donors are 65 or younger. Charities are also offering "flexible start date" annuities, which allow donors to turn on payments at any time down the road. With all three approaches, you get a charitable tax deduction in the year you make the donation. Your deduction is based on how much leftover cash is expected to go to the charity after your death (or the death of your survivor if you choose a joint annuity). Advertisement Do Well by Doing Good While older donors may be better off choosing a gift annuity that starts payments right away, workers who don't need the income now could consider the deferred or flexible options. "You may be still working, but you're thinking of retirement," says Jeremy Arkin, director of gift planning at Duke University. "You will know to the penny how much income you will get each year." (See the table.) If you opt for the deferred or flexible annuity, you'll get a bigger payout the longer you postpone the income stream. That's partly because there will be fewer payments before you die. Before you sign a contract, understand that you can't get the money back, says Bryan Clontz, president of consulting group Charitable Solutions. And if your only goal with an annuity is income and not philanthropy, you're better off buying a commercial annuity, which, Clontz says, offers payments that are about 50% higher than those offered by charities. (Most charities use payout rates set by the gift annuities council.) The lower gift rates don't concern Steve Willey, 70, and his wife, Elizabeth, 67. They bought two commercial annuities soon after they sold their home solar-power business ten years ago. They started buying gift annuities as their bonds matured, and now they own nine of them. "The commercial annuities have a higher rate, but we realized that they were only benefiting the insurance company," Steve says. Advertisement The Willeys, who live in Sandpoint, Idaho, sank about $200,000 into the joint-life gift annuities and draw $16,000 in annual payouts—about 20% of their total income. They chose their favorite charities, including Greenpeace, the American Civil Liberties Union and a local animal shelter. Steve Willey intends to buy more gift annuities, and he expects larger payouts. The older you are when you make the donation, the larger the annual payment and deduction. A 75-year-old who donates $100,000 would get a lifetime annual payment of $5,800 and a $45,772 deduction. That compares with a $28,518 deduction and $4,200 annual payment for a 58-year-old. By using appreciated stock to fund your gift annuity, your deduction will be based on the current value of the shares. Part of each payment will be taxed as a long-term capital gain, part as ordinary income and part as a tax-free return of principal. Time the charitable write-off "to minimize taxes in a big tax year," says Rick Rodgers, a financial planner in Lancaster, Pa. Also, because the annuity "becomes part of your fixed-income portfolio, you will need to adjust your asset allocation," he says.