Mr. Adams, age 55, makes a cash gift this year of $100,000 to Stanford in return for the university's agreement to pay $9,700 to him annually beginning when he retires at 65. Mr. Adams's current income tax deduction will be roughly $39,100 (based on an IRS discount rate of 4.6 percent). Because he is in the 35 percent income tax bracket, his current tax savings will be about $13,700. When he begins to receive the annuity, $3,065 of his annuity payments will be tax-free income for almost 20 years after the payments begin, effectively giving Mr. Adams a rate of return equivalent to a 10.77 percent taxable return.