Giving to Charity? Learn the Ins and Outs of Donor-Advised Funds
These simple, low-cost vehicles tend to be the most efficient and effective ways to engage in charitable giving.
According to the National Philanthropic Trust, Americans gave $358.38 billion to charities in 2014, a 7.1% uptick from the previous year. And with the deadline for deducting charitable contributions approaching on Dec. 31, now is a good time to give back to an organization and/or support a current relief effort.
While there are multiple vehicles available to help support philanthropic giving, we find that donor-advised funds (DAF) tend to be the most efficient and effective giving vehicles. They are simple, low cost, and flexible. They allow donors to maximize the tax benefits of charitable giving while supporting their favorite organizations.
What is a Donor-Advised Fund?
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A DAF is simply an account that helps givers manage their charitable contributions. Through an agreement with a DAF provider, a donor creates a specially named account (i.e. “Smith Family Fund”) to which irrevocable contributions are made. The donor receives an immediate tax deduction but is not forced to make any grants. They can work with their adviser to invest and grow the assets and recommend grants to their favorite non-profit, 501(c)(3) organizations at their leisure.
Why Use a Donor-Advised Fund?
Simplicity. Unlike a private foundation, the donor is not responsible for hiring attorneys and accountants or maintaining a board of directors. The sponsoring organization that holds the fund takes responsibility of all the expensive administration work, including filing annual returns and preparing financial statements.
Tax Efficiency. DAF contributions provide a federal income tax deduction up to 50 percent of adjusted gross income for cash contributions and up to 30 percent of adjusted gross income for appreciated securities. Along with publicly traded securities, DAF holders can also contribute complex assets such as real estate, limited partnership interests, private C- and S-Corp stock, and other privately held assets.
Flexibility. DAF holders receive an immediate tax deduction for their contribution but they are not subject to a legal minimum payout requirement like a private foundation. The flexibility helps donors maximize tax benefits while helping them be more systematic and methodical about their giving.
If you haven’t engaged in charitable giving yet, now is a great time to start. And in doing so, consider the benefits of a DAF—to you and to the future recipients.
Taylor Schulte, CFP® is founder and CEO of Define Financial, a San Diego-based fee-only firm. He is passionate about helping clients accumulate wealth and plan for retirement.
-
S&P 500 Hits New High Before Big Tech Earnings, Fed: Stock Market TodayThe tech-heavy Nasdaq also shone in Tuesday's session, while UnitedHealth dragged on the blue-chip Dow Jones Industrial Average.
-
4% and Chill? Find Out If This Distribution Rule Fits Your RetirementTake this simple quiz to discover whether the 4% Rule will work for you in retirement.
-
Oregon Tax Kicker in 2026: What's Your Refund?State Tax The Oregon kicker for 2025 state income taxes is coming. Here's how to calculate your credit and the eligibility rules.
-
I'm an Estate Planning Attorney: These Are the Estate Plan Details You Need to Discuss (And What to Keep Private)Gen Xers and Millennials would like to know if they're going to inherit (and how much), but Baby Boomers in general don't like to talk about money. What to do?
-
I'm a Financial Adviser: This Is How You Can Minimize the Damage of Bad Market Timing at RetirementPoor investment returns early in retirement on top of withdrawals can quickly drain your savings. The ideal plan helps prevent having to sell assets at a loss.
-
'You Owe Me a Refund': Readers Report Challenging Their Attorneys' BillsThe article about lawyers billing clients for hours of work that AI did in seconds generated quite a response. One law firm even called a staff meeting.
-
7 Questions to Help Kick Off an Estate Planning Talk With Your ParentsIt can be hard for aging parents to discuss estate plans — and for adult kids to broach the topic. Here are seven questions to get the conversation started
-
Down But Not Out: 4 Reasons Why the Dollar Remains the World HeavyweightThe dollar may have taken a beating lately, but it's unlikely to be overtaken as the leading reserve currency any time soon. What's behind its staying power?
-
What Not to Do After Inheriting Wealth: 4 Mistakes That Could Cost You EverythingGen X and Millennials are expected to receive trillions of dollars in inheritance. Unless it's managed properly, the money could slip through their fingers.
-
'The Money Prism' Solves Retirement Money's Biggest Headache: Here's HowThis simple, three-zone system (Blue for bills, Green for paycheck, Red for growth) helps you organize your retirement savings by purpose and time.
-
No, AI Can't Plan Your Retirement: This (Human) Investment Adviser Explains WhyAI has infinite uses. But creating an accurate retirement strategy based on your unique goals is one place where its possibilities seem lacking.
