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Is Donor-Advised Fund Good Idea?
Old 06-03-2014, 11:03 AM   #1
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Is Donor-Advised Fund Good Idea?

We plan to continue tithing/giving to charities about 10% or so of our retirement income. Would it be a good idea to contribute as much as we can now (while we are working) into a donor advised fund? Then later use this fund for our giving as we take money out of our regular retirement accounts (pensions, IRA, 401k).
This would allow us to basically get 25% (we itemize now) back on our taxes now which we will otherwise not get back (probably not itemize later). Since the money will grow and come out tax free this seems even better than my 401k (for any money I plan to give anyway).
If so what is your recommended fund? Vanguard has one but the fees are bit more than the normal fund.
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Old 06-03-2014, 11:33 AM   #2
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Contributed to a DAF when I had a big stock option year in order to get my taxable income down. Taking the whole deduction in a high income year was very valuable to us. We use Schwab DAF and it seems to go pretty easy as far as doling out the money, etc. Their fees are lower than most, higher than some. Multiple investment options to choose from.
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Old 06-03-2014, 11:34 AM   #3
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I think that is a very good idea. I did something similar last year, the year I ER'd. I had a lot of work income from having worked half the year and also a lot of cash from having sold our primary home. I decided to fund a DAF up to about one-half of my AGI with some of the proceeds from the home sale. I saved thousands of dollars in taxes and now have the ability to support my favorite church/charities for years to come. I use Fidelity - where most of my assets are -- and it has been very easy to use. The pool of funds I created is invested in a balanced portfolio. I plan to gradually draw it down over the next 5 - 10 years.
Donating from the fund is simple. I select the charity and Fidelity sends them a check on the date that I select. Fidelity also provides the option of giving anonymously.
I only wish I had known of this option years before. You can also donate appreciated stocks to save cap gains - and receive the charity deduction.
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Old 06-03-2014, 11:38 AM   #4
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Fidelity's DAF is wonderful, IMHO.
Very easy to set up and to use for making donations. Lower minimum donation than Vanguard, which is also nice. Nice options and tracking website. A very happy user here.
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Old 06-03-2014, 11:41 AM   #5
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Originally Posted by RetireAge50
Would it be a good idea to contribute as much as we can now (while we are working) into a donor advised fund? Then later use this fund for our giving as we take money out of our regular retirement accounts (pensions, IRA, 401k).
I think it's a good idea and we have been doing just that since 2009. Our donor-advised fund is with Fidelity.
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Old 06-03-2014, 12:01 PM   #6
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Yes it is a good idea! We just started our DAF this year with Vanguard Charitable. It took some deliberating between Vanguard and Fidelity, but we decided to go with Vanguard because donating assets from our Vanguard funds is so easy. Donating mutual funds across companies is very doable, just a bit more painful in the paperwork area.

But frankly, I like Fidelity's lower initial investment ($5k versus $25k) and also the fact that they allow donations down to $50. Vanguard Charitable's minimum is $500.

Never the less, I love this. It was painless to set up and now that we are donating (or rather directing contributions), that has gone well too.

My reasons to do this was we expect about 4 more years of OMY syndrome. During this time, we'll "over-give" while we are in a high bracket. We'll build up the fund. So, it isn't due to a one-time windfall, but rather due to the fact we expect to get less impact from the deduction later.

It also makes tax time easy.

It is also painless to set and forget recurring contributions to our favorite charity.

And finally, we can "ease down" our contributions to our favorite charity which depends on us, instead of dropping off a cliff when we retire.
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Old 06-03-2014, 12:45 PM   #7
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Does there exist a DAF that pays income/dividends/whatever to the donor, for example, something that operates the way a Charitable Trust does but without all the overhead and paperwork of a Charitable Trust?
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Old 06-03-2014, 01:04 PM   #8
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Another vote here for Fidelity. I started one in 2012 to shelter part of a signing bonus from my new job. One thing I LOVE: Fidelity can send a check to a charity and make it anonymous. So, you get a legitimate tax deduction when you put the money into the trust but the recipient doesn't know who you are and can't put you on mailing/phone lists for future solicitations. Must drive them crazy.
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Old 06-03-2014, 01:36 PM   #9
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We have a Fidelity DAF as well.

However, if one's goal is to help charity, the DAF should be a conduit and should be zeroed out every year. That is donate to DAF, get tax deduction, then divvy up the DAF. The main benefit is a single receipt/donation to put on your tax return instead of trying to keep track of lots of smaller receipts. Another benefit is that some smaller charities are not set up to accept stock or share donations while the DAF is.

One does not get a tax deduction for any growth of the assets within the DAF, so I don't see any benefit to any special investing options within the DAF.

I have seen arguments made that some charities wouldn't know what to do with a single large donation, but would do better with smaller annual donations spread out over a few years. Perhaps so, but I'm not buying it.

We bunch deductions, so that we itemize one year and take the standard deduction the next year. We double up our contributions in a single year in order to do that bunching. For example, contribute in January 2014 and in December 2014; do not contribute in January 2015 nor in December 2015. The DAF allows us to "park" the money for the week or two from December 2014 to January 2015 before giving it out the charity.
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Old 06-03-2014, 04:14 PM   #10
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We set up our DAF w/Fidelity about 6 years ago and contribute 200% of our yearly distribution via sale of highly appreciated fund(s). This gives us a nice tax break now while building up the account to continue to allow us to contribute at today's level with tomorrow's lower income.
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Old 06-03-2014, 06:22 PM   #11
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You can also donate appreciated stocks to save cap gains - and receive the charity deduction.
Donating appreciated stocks, etfs, mf's is definitely the way to go. You get the tax write off on the total amount of the donation and avoid the taxes on the capital gains.
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Old 06-04-2014, 05:20 AM   #12
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Donating appreciated stocks, etfs, mf's is definitely the way to go. You get the tax write off on the total amount of the donation and avoid the taxes on the capital gains.
Keep in mind the holding must be long term.
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Old 06-04-2014, 09:38 AM   #13
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A DAF is a very good option. Another option to consider is a local organization that functions in a similar way, that's what we did through the Dayton Foundation. They'll take appreciated shares and give us a receipt. The money sits in my " Charitable Checking Account ", they'll send donations (anonymously if we want) to any charitable group we specify, I didn't pay any setup fees or recurring fees. Compared to a DAF:
PROs:
1) The money in the account earns interest for the local organization
2) They send us info (because I asked) about local groups that need assistance. The info is well done: Not pleading or guilt-inducing, just some brief overviews of various projects and programs that I can choose to support.
3) Zero annual fees.
4) The folks there were very easy to work with and had an interest in making sure I (as a donor) was completely satisfied.

CONs:
1) I'm sure the quality and competence of these organizations varies widely, and that not every locale has a good one.
2) It's a little more trouble to set up: You have to do research to see if a local foundation is available, contact them, etc. If you are already with Vanguard or Fido, that's probably a bit less trouble just to set up a DAF with the company you are already working with.

Anyway, it's another option to consider. We settled in our town about 10 years ago after my career that had us bouncing around the country every few years--being a part of this group has helped us learn more about things here and how we could help out.

Like LOL, we bunch our deductions, so this has been good for us in saving on taxes. Also, it (either a DAF or a holding account at a local foundation) allows a person to keep donations constant to some organizations despite fluctuating contributions. I think it helps some organizations to have a baseline of steady contributions they can count on, and if nothing else it makes me feel less guilty when I tune in to the local public radio station.
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Old 06-04-2014, 02:02 PM   #14
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Regarding the Fidelity Charitable Giving Account - can you make donations to pretty much any charity? For example - can you have funds sent to your Church or Synagogue? Do you have the ability to have a notation on the donation as to what it is for - like for a specific fund within the charity?

Thanks.
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Old 06-04-2014, 02:24 PM   #15
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Regarding the Fidelity Charitable Giving Account - can you make donations to pretty much any charity? For example - can you have funds sent to your Church or Synagogue? Do you have the ability to have a notation on the donation as to what it is for - like for a specific fund within the charity?

Thanks.
Yes, you have the ability to designate the money for a specific need. I often do that. And you can make donations to any public charity (you can double check the status of your organization of choice by researching it on Fidelity's website - click on the "research charities with GuideStar" link on the homepage). There are some restrictions. For example, you cannot give to a charity that may offer you substantial benefits in exchange for your donation (see "which grant cannot be made" here).
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Old 06-04-2014, 04:05 PM   #16
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Vanguard Charitable is pretty much the same. I mostly give to my church and it wasn't a problem. Guidstar works to help give a sense of applicability, and if you have the EIN number, all the better.

They do check. If you were to donate to the "Church of ER.org", I think they'd weed you out.
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Old 06-04-2014, 04:58 PM   #17
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using a DAF also makes it easy to give anonymously. Keeps you off a lot of lists.
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Old 06-04-2014, 05:04 PM   #18
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They do check. If you were to donate to the "Church of ER.org", I think they'd weed you out.

Ray Benson of Asleep At The Wheel one time led a prayer for "The Church Of The Broken Bottle". It's the same thing.
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Old 06-04-2014, 05:49 PM   #19
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Another Fidelity DAF user here. It lets me bunch my deductions in alternate years.
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Old 06-05-2014, 09:14 AM   #20
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Thanks for all the replies. Very helpful. The one aspect that bothers me is the extra .6% fee taken out every year. But probably still worth it for the immediate tax break while in higher brackets.
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