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How are you handling your donor advised charitable fund?
Old 12-21-2014, 06:03 AM   #1
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How are you handling your donor advised charitable fund?

Last year we set up a donor advised fund for charitable gifting as part of our strategy of itemizing deductions every other year. Just like we pay property taxes for two years in the same year (Jan for prior, and Dec for current), we make charitable contributions to the fund every other calendar year - Jan for prior, and Dec for current.

In terms of donating from the fund - we are taking 30% of the value of the fund each year and gifting it to our charities of choice.

DH is running our "foundation". I need to work with him to coordinate which investments to pull funds from when he is ready to do so. It didn't even occur to him to consider this aspect and donations were automatically pulled from all investments proportionally.

Just wondering what other people do.

BTW - we had no trouble at all setting up donations to our charities of choice, even though almost none of them were on the pre-approved list, and some were quite tiny. Had a funny incident where one donation didn't go through. The envelope was addressed to the president rather than the treasurer of the organization, and check never was cashed and expired after 90 days. At which time we contacted the organization. Was easy to resubmit with a different addressee.

We are really enjoying the ease of using a donor-advised fund and the decoupling of tax timing for setting aside funds for donation with the actual gifting. We're also more disciplined about gifting now that the funds are already set aside and can't be used for any other purpose.
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Old 12-21-2014, 06:11 AM   #2
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Last year I had a an unusually high taxable income and decided to put $50k in a donor advised charitable fund with Schwab. It was easy and since then my wife and I have truly enjoyed philanthropic giving. Two tips. Fund the account with stocks bearing high capital gains, so you don't have to pay that tax. I gave another $10k this year by transferring stocks I paid probably $5k for three years ago.

And consider using charitable giving to enhance your enjoyment of organizations you might belong to. For example, we gave at a level to our university library that brought us into a special membership that now has us being invited to special events.

Another point, be prepared for other solicitations. Schwab allows you to omit your names and addresses if you do not want to be recognized.
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Old 12-21-2014, 06:39 AM   #3
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Really good tip about funding with shares with high capital gains.

With Fidelity, you can also fund with mutual fund shares I believe. I think anything in our brokerage account can be donated to the charitable fund.

There are some things I need to trim for rebalancing, and I can gift those shares to reduce our realized gains for next year. I actually hadn't thought about tying in the charitable donation with rebalancing, but I will from now on! Timely!
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Old 12-21-2014, 06:55 AM   #4
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DW and I are also alternating years to itemize deductions. 2014 is our itemized deduction year. We set up a Fidelity trust this year even though we are almost entirely Vanguard. The key difference for us was the ability to make smaller donations. Vanguard requires $500 minimums and we sometimes want to donate but not that much.

We have a few standard charities we donate to and then some special ones that come up during the year. We don't have any specific percentage of the fund to donate each year but contributions are made targeting about 2 years of donations with a little left over.

We set ours up using a highly appreciated ETF. I traded SPY for VTI in the dark days of 2008 to capture the capital loss we had in SPY but wanted to stay in the market. I have plenty of VTI left and will use it to fund the trust next time.

Originally, I was going to retire in 2014 in the middle of the year. I roughed out my taxes and suddenly realized a large, one time SERP payment would trigger really high marginal taxes and go into the AMT zone where charitable deductions are impacted. Hence, I delayed retirement to Jan 2015. I'm going to preview my taxes to see what 2015 would look like with a significant tax deduction in 2015. If fully deductible, 2015 would be a good time to make a significant charitable donation.
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Old 12-21-2014, 07:28 AM   #5
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Originally, I was going to retire in 2014 in the middle of the year. I roughed out my taxes and suddenly realized a large, one time SERP payment would trigger really high marginal taxes and go into the AMT zone where charitable deductions are impacted. Hence, I delayed retirement to Jan 2015. I'm going to preview my taxes to see what 2015 would look like with a significant tax deduction in 2015. If fully deductible, 2015 would be a good time to make a significant charitable donation.
Could you please elaborate on the AMT/charitable deduction effect? I was under the impression that charitable deductions are still allowed under AMT and if your marginal rates are higher, wouldn't that be more beneficial to take them then?
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Old 12-21-2014, 07:31 AM   #6
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Could you please elaborate on the AMT/charitable deduction effect? I was under the impression that charitable deductions are still allowed under AMT and if your marginal rates are higher, wouldn't that be more beneficial to take them then?
That is correct. Charitable donations are fully allowed under AMT. There is no income limit reducing deductions either as there is under regular tax.
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Old 12-21-2014, 08:06 AM   #7
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That is correct. Charitable donations are fully allowed under AMT. There is no income limit reducing deductions either as there is under regular tax.
That is my misunderstanding. I've always been able to avoid the AMT but have thought that it limited deductions. When I confirm this, it guarantees I'll also itemize in 2015 and make a substantial contribution since that will be the only way to get out of the 33% tax bracket.

Thank you for the tip.
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Old 12-21-2014, 02:10 PM   #8
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Our Fidelity DAF is pretty much like audreyh1's. I put the appreciated stocks held more than year into it. And my spouse does the granting. We are doing the bunching thing, too. We do not let the DAF appreciate, but try to dole it out relatively quickly. The tax break is from donating into the DAF and not from parsing the money out to charities, so I don't feel any reason to hold back giving it all out.

This year is the last year of high tax bracket, so an especially big donation will go in next week. I'm waiting for a little bit of increase in the prices of the stocks going in to get a bigger deduction, but if prices drop, it will still go in.

In the past, we did donate shares directly to charities, but the DAF makes it a little bit easier.

Another thing, these shares are really old, so the cost basis is a little bit cloudy, but it really doesn't matter going to the DAF.
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Old 12-21-2014, 03:31 PM   #9
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Originally Posted by audreyh1 View Post
Last year we set up a donor advised fund for charitable gifting as part of our strategy of itemizing deductions every other year. Just like we pay property taxes for two years in the same year (Jan for prior, and Dec for current), we make charitable contributions to the fund every other calendar year - Jan for prior, and Dec for current.
...
Is the every other year a tax strategy that works in a more general way? When is it best to use this? Sorry, I know this may be a bit OT but maybe it would help when RMD's kick in combined with Social Security.
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Old 12-21-2014, 03:56 PM   #10
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Is the every other year a tax strategy that works in a more general way? When is it best to use this? Sorry, I know this may be a bit OT but maybe it would help when RMD's kick in combined with Social Security.
Bunching deductions works well when your itemized deductions are close to the standard deduction. It is really quite simple if your local tax agencies will let you pay in December or January. Some agencies require payment in June, so it doesn't work so well.

The maximum savings is really easy to see as well. It is not unlimited, but equal to the tax savings on the standard deduction of about $14,000. So in the 25% tax bracket that is 0.25 * $14K over 2 years or about $1750 in taxes per year.

Bunching does not work so well if you are forced to pay those expenses each year (property taxes, mortgage interest, state income taxes). There is no reason to bunch if your forced expenses are already over the standard deduction limit.

Consider the case where you have $14K in itemized deductions each year. Over 2 years, you will have $28K in deductions. That is the same whether you itemize or not. But make this change: Move one year's itemized deductions into the next year. Now you have $28K of itemized deduction in that one year, but the other year you have $14K as the standard deduction, for a total of $42K deductions over 2 years.

Yes, it would help when RMD's kick in and would help the same when RMD's do not kick in.
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Old 12-21-2014, 04:17 PM   #11
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That is my misunderstanding. I've always been able to avoid the AMT but have thought that it limited deductions. When I confirm this, it guarantees I'll also itemize in 2015 and make a substantial contribution since that will be the only way to get out of the 33% tax bracket.

Thank you for the tip.
AMT limits certain deductions, like property taxes and state income or sales taxes, and quite a few other things. But mortgage interest and charitable donations and some medical deductions are allowed.
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Old 12-21-2014, 04:48 PM   #12
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I really like our donor advised fund at Schwab.

We have a very long term view of this -- like my retirement strategy I'm trying to create a self-sustaining charity fund while also balancing current end-charity granting.

We keep a consistent AA within our DAF, and then use a methodology where we gift out 100% of the previous year's gains plus 50% of what we donate that year. Using this metrology, We've got the DAF to over $50k of principle that now kicks off annual gains to be granted to a charity each year.

We try to give sizable donations to few charities we feel strongly about.

I have an aspiration to get this to $1M someday but don't really have a plan for that yet. I think I can probably get it to $250k by the time I FIRE in 7 years. I've thought of working a few additional years to really crank the funds in the DAF.

+1 on donating appreciated securities!
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Old 12-21-2014, 05:14 PM   #13
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donated some highly appreciated ETF's to our Schwab DAF last year when we had significant income due to last round of stock options vesting. Avoided cap gains on the etf which got me to my prescribed asset allocation for total portfolio and used the deduction to lower income as the options show as ordinary income. We basically give away 8-10% each year of the total value of the DAF.

Going to get snared in the AMT this year so will have to start doing the "bunching" strategy next year. In fact had my property taxes ready to send prior to year end and when I figured that I was going to get hit by AMT I ripped up the check and just paid the portion that I needed to for first half of the year.
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Old 12-21-2014, 05:19 PM   #14
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I think this will be part of my 2015 plan - I have some appreciated stock (actually I don't know what the cost basis is but I assume it's appreciated!) that I've been donating directly to a charity, but Merrill Edge (where the shares have been held since forever) is making it very difficult to actually gift the shares. So I think I'll move the remaining shares to a DAF where they should be easier to donate.
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Old 12-21-2014, 07:19 PM   #15
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I really like our donor advised fund at Schwab.

We have a very long term view of this -- like my retirement strategy I'm trying to create a self-sustaining charity fund while also balancing current end-charity granting.

We keep a consistent AA within our DAF, and then use a methodology where we gift out 100% of the previous year's gains plus 50% of what we donate that year. Using this metrology, We've got the DAF to over $50k of principle that now kicks off annual gains to be granted to a charity each year.

We try to give sizable donations to few charities we feel strongly about.

I have an aspiration to get this to $1M someday but don't really have a plan for that yet. I think I can probably get it to $250k by the time I FIRE in 7 years. I've thought of working a few additional years to really crank the funds in the DAF.

+1 on donating appreciated securities!
That's really interesting. Especially about your methodology for payout. Thanks for sharing!
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Old 12-21-2014, 07:29 PM   #16
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Is the every other year a tax strategy that works in a more general way? When is it best to use this? Sorry, I know this may be a bit OT but maybe it would help when RMD's kick in combined with Social Security.
LOL explained it really well. We don't have enough deductions in a single year to beat the standard deduction - only property taxes and charitable donations. But if we bunch every other year we exceed it by a good amount. So it works well for us.
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Old 12-22-2014, 11:35 AM   #17
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Started a DAF this year. We are currently in 25% bracket and itemize but when we retire expect to be in 15% and use standard deduction. We tithe to our church so trying to build this up now for future giving.

I'm somewhat confused by transferring appreciated stocks to the account. Why would this be a good idea? I thought capital gains are taxed at lower rates so would think it would be better to sell the stocks, pay the lower rate and then fund the DAF and get a deduction worth your higher marginal rate?
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Old 12-22-2014, 12:10 PM   #18
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Started a DAF this year. We are currently in 25% bracket and itemize but when we retire expect to be in 15% and use standard deduction. We tithe to our church so trying to build this up now for future giving.

I'm somewhat confused by transferring appreciated stocks to the account. Why would this be a good idea? I thought capital gains are taxed at lower rates so would think it would be better to sell the stocks, pay the lower rate and then fund the DAF and get a deduction worth your higher marginal rate?
When you donate appreciated assets you get the full tax deduction of its current value plus you avoid the capital gains tax. If you sold your LT gains you would pay the tax. If you then donated the original value of your appreciated asset you would still get the same deduction. The difference is you paid the LT capital gain tax. Even though the tax rate for LT capital gains is lower you can avoid paying it. It's even better to avoid the ST capital gains tax.
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Old 12-22-2014, 01:08 PM   #19
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Thanks 2B for explanation. Simple enough but for some reason my brain wasn't calculating this right.
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Old 12-22-2014, 01:25 PM   #20
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Originally Posted by RetireAge50 View Post
Started a DAF this year. We are currently in 25% bracket and itemize but when we retire expect to be in 15% and use standard deduction. We tithe to our church so trying to build this up now for future giving.

I'm somewhat confused by transferring appreciated stocks to the account. Why would this be a good idea? I thought capital gains are taxed at lower rates so would think it would be better to sell the stocks, pay the lower rate and then fund the DAF and get a deduction worth your higher marginal rate?
As 2B explained - the major benefit for us is that the gain doesn't even show up on our AGI. So this can help with lots of progressive taxes that are tied to the AGI. Also, you can select your lowest cost basis shares to transfer. Thus saving the shares with higher tax basis for when you do realize the gain.
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