Donor advised funds

[medved]

Anyone use these? I am still working, and in a high tax bracket. Seems like a pretty good deal -- I contribute appreciated stock, avoid capital gains tax, get the charitable deduction in year one, and then make charitable contributions, which I would make anyway, over X years in the future. Costs 60 bps at Fido. Schwab has similar. Wonder why I never did this in the past.

 

[gauss]

Because you didn't know about it? That was the case for me.

The DAF becomes especially useful when one no longer is able to Itemize Deductions (Schedule A) every year such as when house is paid off or W2 income stops.

I now bunch deductions into every other year and further fund the DAF in these years. I can then request that the funds be dispensed whenever so that I don't loose the charitable deduction in the years when I don't file the Schedule A.

I went with Fido because their minimum grant request was only $50.

-gauss

 

[braumeister]

We opened a FIDO DAF in 2013 and we love it. Simplifies so much. I also like the nice gains the account has made since we opened it, further magnifying our ability to donate. I would recommend it to almost anyone.

 

[RockyMtn]

I have had one at Schwab for about six years. Good for managing taxable income and bunching deductions. Some years I donate others I don't. Donating the appreciated equities is another bonus.

 

[EQMAN]

I have had one at Schwab for about six years. Good for managing taxable income and bunching deductions. Some years I donate others I don't. Donating the appreciated equities is another bonus.

+1

 

[athena53]

Greatest thing since sliced bread. I opened one to shelter a signing bonus when I started at my last employer.

My favorite feature is that you can donate anonymously. Make a generous contribution to a charity and send a check or put it on your credit card and they WILL track you down and hound you forever. You can tell Fidelity to send the check and state that the donor wishes to remain anonymous. Must drive them crazy!

 

[bingybear]

before FIRE I funded the fido doner advised fund [DAF]. In those days my state and local taxes exceeded my standard deduction, so all the gifts were tax deductible. Now I would have to bunch up a lot of stuff to get to the level of itemizing. But I can give from the DAF and let it grow..

 

[braumeister]

My favorite feature is that you can donate anonymously.

Yes, I think this is my favorite feature as well. I've avoided getting on (or been dropped from) the begging lists of many charities by now and it's such a relief.

 

[FIREd]

I started contributing to a Fidelity DAF 8 years ago. Our work income was pretty lumpy (due to stock options) and we used to contribute to the DAF only in good income years to get the maximum tax deduction. Now that we are retired, we have stopped contributing to the fund and use the balance to make charitable donations. I like to give anonymously.

 

[bingybear]

I use anonymously or semi anonymously (name, but not contact info) sometimes. However I like the tools to investigate potential charities. They (fido) provides access to external tools that allow one to check out the charity financials, org structure, and more.

 

[jebmke]

We have a VG DAF. We made donations in years when our tax rate spiked pre-retirement. Great for tax rate arbitrage but if you don't have tax rate differences better to use as pass-through. Anonymous donating is a real benefit! Keeps you off the lists which is critical in our small town.

 

[523HRR]

I've looked into doing a DAF but can't get past the idea that there is no additional tax benefit for the investment growth in the account after the point of your contribution. So, contribute securities in the amount of say, $10,000 now and get a $10,000 tax deduction. If the investment grows by 10%, to $11,000, there is no additional tax deduction. Instead, continue to hold the securities in my taxable account and donate the securities directly to the charity when I'm ready and now worth $11,000 and get a full tax deduction for $11,000 while still avoiding capital gains tax -- and eliminate the DAF fee as well. I get the other benefits that have been mentioned (bunching deductions, anonymity), but if you're routinely in a high tax bracket anyway, there seems to be tax and cost disadvantages to a DAF that should at least be considered.

 

[gerntz]

I've looked into doing a DAF but can't get past the idea that there is no additional tax benefit for the investment growth in the account after the point of your contribution. So, contribute securities in the amount of say, $10,000 now and get a $10,000 tax deduction. If the investment grows by 10%, to $11,000, there is no additional tax deduction. Instead, continue to hold the securities in my taxable account and donate the securities directly to the charity when I'm ready and now worth $11,000 and get a full tax deduction for $11,000 while still avoiding capital gains tax -- and eliminate the DAF fee as well. I get the other benefits that have been mentioned (bunching deductions, anonymity), but if you're routinely in a high tax bracket anyway, there seems to be tax and cost disadvantages to a DAF that should at least be considered.

Yes. I don't see how this helps tax-wise if you're still in high bracket when you donate in bunched deductions years.

 

[bingybear]

I've looked into doing a DAF but can't get past the idea that there is no additional tax benefit for the investment growth in the account after the point of your contribution. So, contribute securities in the amount of say, $10,000 now and get a $10,000 tax deduction. If the investment grows by 10%, to $11,000, there is no additional tax deduction. Instead, continue to hold the securities in my taxable account and donate the securities directly to the charity when I'm ready and now worth $11,000 and get a full tax deduction for $11,000 while still avoiding capital gains tax -- and eliminate the DAF fee as well. I get the other benefits that have been mentioned (bunching deductions, anonymity), but if you're routinely in a high tax bracket anyway, there seems to be tax and cost disadvantages to a DAF that should at least be considered.

I donated to the DAF when I was working and in a high tax bracket and using appreciated securities. In those days my state and local income taxes exceeded the standard deduction. Thus I could write off my complete DAF contribution.

Now FIRE, I am somewhere in the 15% bracket with Q-Divy that are not taxed. Without donating other items I am not near itemizing. I use the DAF to fund my giving.
If you are not going to drop brackets after RE, then it may not make a lot of sense to use a DAF the way I am. The way I see it, I got the itemization when I was at high tax rates (while working). Now I can give away gifts using the money + growth of the DAF contributions. I took the itemization at a high tax rate and now donate it where I likely would not get much of a write off anyway.
Now if you are RE and in a much higher bracket, you may just have a bigger pot of $, are investing it differently, or have it distributed in account types differently.

There are many knobs to turn when planning FIRE and we each have to adjust our own.

 

[jebmke]

Yes. I don't see how this helps tax-wise if you're still in high bracket when you donate in bunched deductions years.

It doesn't. If you have no significant tax rate arbitrage you are better off donating only what you plan to donate for that year. Some use the DAF for this purpose -- pass through -- the main benefit is anonymity in this regard.

For me, I had a couple of spike years of my tax rate so it made sense to bunch. We also had a stock get bought out one year so rather than let them cash me out and trigger a gain I dumped it in the DAF.

I suppose it could also be used in lieu of setting up a foundation if you plan to blow out some big donations and don't know where to put them. Once we hit 70.5 I have to decide how we go about this - either DAF or foundation but I am not keen on the hassle of a foundation even though it might be cheaper.

 

[steelyman]

This thread’s a little old but the title matches what I’m starting to learn about: donor advised funds.

To those knowledgeable: have the recent tax changes changed your opinions about this vehicle?

 

[Dash man]

This thread’s a little old but the title matches what I’m starting to learn about: donor advised funds.

To those knowledgeable: have the recent tax changes changed your opinions about this vehicle?

No. I was able to move appreciated stock into the donor advised fund and can deduct it off my taxes since I itemize. Even if I couldn’t itemize, I can make a donation without paying the capital gains tax that would otherwise be paid. They’re still a good deal.

 

[JoeWras]

They've changed my strategy to group our donations together to every 2nd or 3rd year so we can itemize. Otherwise, still useful, especially for those of us not eligible to do the QCD thing yet.

It really makes donating appreciated stock a breeze for both me, and the charity who will ultimately get the donation.

 

[braumeister]

No change for me. I only donated to it occasionally when it made tax sense and I still do it that way. Since RMDs began, we're using QCDs quite a bit in parallel with the DAF. Overall charity donations are up quite a bit in our household!

I do like the way Fidelity manages the DAF. It's very easy to use.

 

[OldShooter]

We are in RMD territory, so we donate via QCDs to a fund at a local community foundation. (https://www.cof.org/community-foundation-locator) QCDs cannot go to DAFs, but the foundation is a small operation and we informally talk with them about their donation proposals.

By using QCDs for almost all of our charitables we are able to take the standard deduction when our actual deductions are only about half of that value. So we actually turn a sort of profit by using the QCDs. At Schwab, at least, QCDs are literally as easy as writing a check. They send us checks that draw on our IRA, and we send the checks to the foundation, DW's church and other charities, even to the public radio annual dues. No donation is too small for a QCD though some (like girl scout cookies) don't fit.

 

[RunningBum]

I set up and funded my DAF the year before the standard deduction was raised, and I also wanted to take some big gains in my taxable account, so the timing was really good for me.

With the tax law changes, I'd look at funding my DAF year by year to get to 72, and leave enough in my tIRA to do QCDs after that.

 

[pb4uski]

So I assume that with QCDs that you liquidate investments in your tIRA and the proceeds go into your tIRA settlement account and then you write a check out of your tIRA's settlement account to the charity?

 

[Montecfo]

Yes we do. Great tool.

 

[steelyman]

These recent replies are interesting - thanks! I’m not yet QCD-eligible but it seems there are benefits to DAFs. Got some homework to do, I think.

 

[audreyh1]

This thread’s a little old but the title matches what I’m starting to learn about: donor advised funds.

To those knowledgeable: have the recent tax changes changed your opinions about this vehicle?

We had done most of our funding via highly appreciated stock before the tax law changes. We are now doing grants only. The plan is give most of it by QCDs from RMDs time.

It’s a terrific vehicle for grants to charity. Love how cleanly it works. QCDs won’t be anonymous and will require record keeping.