Toddtheformeraccountant
Recycles dryer sheets
So my situation is that I'm retiring next year, and this is the last year that I will be in the maximum federal and state tax brackets (ugh...13.3% state, 37% federal, so more than half goes to tax man...part of the reason I'm retirement lol). Last few years I've been using a donor advised fund (DAF) to fund all my charitable contributions to my church and elsewhere...using appreciated VOO stock...I give 10% of my earnings to charity ("tithing" concept as a christian, for clarity).
So I got to thinking, given that I will continue to give 10% of my income (including recognized capital gains, interest, dividends) to charity, after I retire that will be much lower. So seems like a no-brainer to calculate the present value of all my future charitable contributions..based upon where retirement funds will be, taxable funds will be, dividends, capital gains, etc. (and tax thereon)...and fund that amount today in the DAF with appreciated stock, getting a deduction this year which has a 50.3% value in tax savings. So I won't get deductions in the future for my 10% disbursed to charities from my DAF....but my tax rate will be much lower. And the "earnings" on the DAF will not be taxable either. So I'm ahead of the game.
Also, asset allocation in the DAF will mirror my other funds...so that the parallel charitable contribution fund will grow (or not) same as the other funds. If the market crashes, then the DAF crashes, if market booms, DAF booms, and I (theoretically) keep the "right" amount on hand at all times to satisfy my theoretical charitable contribution "liability."
Very simple, somewhat analogous tax arbitrage to the ROTH conversion scheme (which I will do as well).
Can anybody poke holes in this strategy?
So I got to thinking, given that I will continue to give 10% of my income (including recognized capital gains, interest, dividends) to charity, after I retire that will be much lower. So seems like a no-brainer to calculate the present value of all my future charitable contributions..based upon where retirement funds will be, taxable funds will be, dividends, capital gains, etc. (and tax thereon)...and fund that amount today in the DAF with appreciated stock, getting a deduction this year which has a 50.3% value in tax savings. So I won't get deductions in the future for my 10% disbursed to charities from my DAF....but my tax rate will be much lower. And the "earnings" on the DAF will not be taxable either. So I'm ahead of the game.
Also, asset allocation in the DAF will mirror my other funds...so that the parallel charitable contribution fund will grow (or not) same as the other funds. If the market crashes, then the DAF crashes, if market booms, DAF booms, and I (theoretically) keep the "right" amount on hand at all times to satisfy my theoretical charitable contribution "liability."
Very simple, somewhat analogous tax arbitrage to the ROTH conversion scheme (which I will do as well).
Can anybody poke holes in this strategy?