Tax Breaks

Donor-Advised Funds: Tax Break Now, Charity Later

You can fund it with cash, appreciated stock and funds, or other assets.

I understand that a donor-advised fund will give me more control over my charitable giving. How much money do I need to open one? Can I contribute stock to it, or do I have to write a check?

A donor-advised fund is a great way to get a charitable tax deduction now and have an unlimited amount of time to decide which charities to support. Several mutual fund companies, brokerage firms and community foundations offer donor-advised funds. The amount of money you need to open an account varies; it’s $5,000 at Fidelity and Schwab, $10,000 with T. Rowe Price and $25,000 with Vanguard. Many community foundations require $10,000 to open a donor-advised fund, but some have lower thresholds (you can find community foundations by using the Community Foundation Locator).

You can contribute all kinds of assets to the donor-advised fund, including cash, mutual funds and stock. Some donor-advised funds even let you contribute real estate or shares of privately held companies. The donor-advised fund usually gives you a choice of several mutual funds or investment pools in which to invest the money until you select the charities to support. You can make grants of as little as $50 or as much as your total balance to almost any qualified charity.

A donor-advised fund can be a good way to donate appreciated stock or mutual funds and benefit from the tax break. You can transfer the stock quickly to the donor-advised fund when it reaches a target price, and you’ll get to take a charitable deduction based on the stock’s value when you make the transfer (and avoid having to pay capital gains taxes on the increase in value since you bought it). But you’ll have an unlimited amount of time to decide which charities to support. Some families build up money in the fund over a few years, then work together with their children and grandchildren to choose the charities.

When choosing a donor-advised fund, compare the requirements to open an account as well as the fees. Most charge an annual administrative fee (0.60% of assets is typical) in addition to fees for the mutual funds or investing pools. Also compare the investing choices. You may be able to choose from several diversified asset-allocation pools, or you may be able to put together a portfolio of investing pools based on certain indexes or asset classes (such as U.S. equities, international equities and fixed income). The administrator may also provide access to resources to help you choose the charities, such as the GuideStar database and research reports, or a community foundation’s specialized resources for local charities.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
9 Great Growth ETFs for 2022 and Beyond
ETFs

9 Great Growth ETFs for 2022 and Beyond

These growth ETFs offer exposure to higher-risk, higher-reward stocks while lessening the risk of a single stock torpedoing your returns.
January 18, 2022
The 10 Best Closed-End Funds (CEFs) for 2022
CEFs

The 10 Best Closed-End Funds (CEFs) for 2022

These high-yielding CEFs won't just significantly boost your portfolio income. They'll also allow you to buy their underlying stocks and bonds at a di…
January 12, 2022

Recommended

Why This Tax Filing Season Could Be Ugly
Coronavirus and Your Money

Why This Tax Filing Season Could Be Ugly

National Taxpayer Advocate Erin M. Collins warns the agency will continue to struggle with tight budgets and backlogs. Her advice: File electronically…
January 26, 2022
Con Artists Target People Who Owe The IRS Money
Scams

Con Artists Target People Who Owe The IRS Money

In one scheme, thieves will offer to "help" you pay back taxes, only to leave you on the hook for expensive fees in addition to the taxes.
January 24, 2022
12 Questions Retirees Often Get Wrong About Taxes in Retirement
retirement

12 Questions Retirees Often Get Wrong About Taxes in Retirement

You worked hard to build your retirement nest egg. But do you know how to minimize taxes on your savings?
January 21, 2022
14 IRS Audit Red Flags for Retirees
retirement

14 IRS Audit Red Flags for Retirees

Seniors beware: Your actions can increase the chances of the IRS giving your tax return a closer look.
January 21, 2022