As part of our new series, Young Money Cares, we’re sharing some tips on how to make charitable giving a regular part of your budget.
Intro to Donor-Advised Funds & Their Benefits
Donor-advised funds (DAFs) allow you to bookmark your investments that have appreciated (increased in value) for charitable giving.
- No Capital Gains Tax: Because you are donating your investment to charity, you do not have to pay capital gains tax on it. For many people, this is the largest benefit! You can save on taxes that you would have otherwise paid.
- Immediate Tax Deduction: You receive a tax deduction for the entire value of the investment in the year that you move it into the DAF. This means you can receive a deduction even if you have not decided on the right charity yet. For Generous Donors Who Itemize Taxes: you may benefit in taxes from splitting your donation into a few years instead of donating all at once.
- Charity Options: Any 501(c)(3) recognized charity qualifies. These include local churches, universities, animal shelters, or national / international organizations like the ACLU.
- Time is on Your Side: Choose when to donate your invested DAF and have the assets grow for years as you decide.
- Optional Anonymity: Rename your DAF to either stay anonymous or recognize a deceased loved one.
Factors to Consider
- No Take Backs: You cannot take your money out. Once you move your investment into a DAF, it’s officially allocated for donation.
- Registered Charities Only: Only donations to 501(c)(3) charities qualify. While many organizations fit this bill, GoFundMe or other crowdfunding does not count.
- Fees: DAF assets will be charged investment and administrative fees. These fees are small (<2% in aggregate) and cut into the amount that charities receive, but are still less than what you would pay in tax on assets with capital gains.
- Limited Investment Options: You cannot day trade these funds the way you might in a personal brokerage. Instead, you will choose from “investment pools” that work similarly to passive index funds. They have a mix of stocks, bonds, etc. that target either conservation, balanced growth or aggressive growth.
Popular Donor-Advised Fund Options
This writer currently has a DAF with Fidelity due purely to convenience and lower fees. If you already have an account with a broker, you can directly see and transfer assets from your existing brokerage accounts into the broker’s DAF.
We do not endorse any one brokerage, as each has its pros and cons.
- Fidelity’s Giving Account
- Charles Schwab Charitable Account
- T. Rowe Price Charitable Account
- Vanguard Charitable Account
We do NOT get any affiliate revenue from this page or from you opening a Donor-Advised Fund with these links. We simply want to share a financial product that gives people more flexibility and money to donate (we hope)!