I am going to muddle through my goal of setting up a donor advised fund in 2020 in this thread. Conversation from the knowledgeable or curious are both welcome.
A DAF (donor-advised fund) in the US is a personal account that locks up funds for donations to registered nonprofits. The tax deduction comes the year you contribute to the DAF, but donations can be made later. (This is often mentioned as a critique of DAFs because the benefit to society is stalemated.)
Things I think I have learned:
DAFs are typically managed by investment companies, like Charles Schwab and Vanguard.
Most have (1) a minimum to create the account and (2) a minimum per-donation.
Funds have an administration fee.
You can contribute many different kinds of assets: cash, stock, etc. Some even accept unique contributions like unvested stock.
Once funds are in the fund, you can do regular investment stuff with it like buy index funds, etc. All of it grows tax-free.
Will probably nudge me to give more, in more structured ways
Anonymity is an option
Cons or challenges:
More paperwork (but it will probably be worth it)
75% of my “not for myself” dollars this year were outside of 501c3s, split between political campaigns and investing in women/POC-led businesses. (A DAF can’t be used for that. Will need to figure out if there’s another way to optimize or organize that.)
Also following along, because I’ve been curious about this.
From my very brief perusal right now it looks like Schwab and Fidelity don’t actually have account minimums, and the per-donation minimum is $50. I’d always looked into Vanguard, which has a $25k and $500 minimum (!!) and so had just kind of set it aside, but this makes me think about it more.
I don’t itemize so no charitable deductions for me.
However, it does seem that this could be a good way to maximize total donations. As far as I understand it – someone please please please correct me if I’m wrong – you put assets into the DAF without paying capital gains taxes; those grow and earn; and then when you donate from the DAF you again don’t pay capital gains the way you normally would, and neither does the receiving org. That means the full value of the appreciated investments goes to the receiving org, no taxes taken out. Is that accurate?
I had less paperwork in my pros column! It was very easy to set up, and once it’s established, it’s easier to throw a big batch of stock over to the daf then it is to submit and keep track of individual donations.
Many groups won’t accept stocks/bonds, either, so the daf structure allows you to donate the normal way without figuring out the specific rules for that org and trying to contribute stock in small batches.
This one, I had the same worry. I knew I would have enough donations to c3’s, eventually, but it wasn’t going to be my priority in 2020.
Keep total $ donated and % allocated to c3’s the same each year - in this case, see if you will eventually donate the daf funds, in 5-10 years
Increase total $ donated, keep % allocation the same
Keep total $ the same, increase % allocated to c3’s
Increase total $ and % to c3’s
I changed my strategy to donate more to c3’s that still served my voting rights goals, instead of only to partisan campaigns. It allows me to donate much more, total, since I don’t need to worry about capital gains taxes messing with health insurance eligibility, and the contributions are tax-free.
I also like the idea of helping groups that persist during off-cycles. People complain about campaigns coming into town, asking for votes, and then leaving. A community-based group that builds longer-term connections is a great way to engage people who might otherwise be disillusioned.
Yep! I was able to donate stocks that had the most unrealized capital gains, so that I wouldn’t need to pay taxes on those gains.
For me, the DAF was really only worth it when we itemized.
Now that we do not itemize in most years, we will hold our contribution for multiple years and only fund it when we have $25k to give.
I have had no additional paperwork for my DAF though. It’s been super easy. I did just move it from Vanguard to Fidelity, as Vanguard increased their fees for small accounts. I had planned only on donating when it dipped below $1,000, so only every 5 years or so, and therefore it would have hit me hard. Fidelity is much more flexible; Vanguard required $500 disperments, which is sometimes more than I want to give to a particular organization.
I don’t recall having to do much paperwork at all! We have ours with Fidelity (where we have all the rest of our accounts). If the organization that you’re donating to is already in their database, things go through quickly, otherwise you have to wait for approval.
Since the standard deduction is so high now, I recommend that you plan for a big lump sum in your DAF in a single year to try to maximize your tax deductions.
PTF. I’m not in a position to do this quite yet, but it will definitely be part of my longer-term financial planning.
Re: investing in women and BIPOC businesses, while I understand that you probably want to do some of this directly there probably are 501c3 orgs that have relevant programs. I know there are problems with the whole microlending sector but places like kiva.org do a lot of their lending to women with small businesses in developing countries.
This is done! I originally wanted to use Vanguard where we already have other investment accounts, but chose Schwab in the end. Turns out, Vanguard Charitable use entirely different logins so it wasn’t more convenient anyway. Also, Schwab is much more flexible (no contribution minimums, and $50 minimum grant) while fees are identical.
Minimum additional contribution
Fee (first $500,000)
(Ping me if you want me to add other options to this table.)
During the account opening process, a few questions came up that I would have liked more time to think about! With the year end looming, we ended up making temporary decisions that we may revisit. Heads up for anyone considering:
Fund name: Your grants will be signed as “coming from” the fund name. It can have your name or something anonymous, like Fluffy Peanut Charitable Fund. I used our last names for now, but may end up changing to something more anonymous.
Beneficiaries: You can designate a person, a 501c3, or the general administrative fund as the beneficiary. You can also split between these options by percentage.