Could Donor-Advised Funds Soon Be as Popular as 401(k)s?
Interest in this charitable giving tool is growing as it offers simplicity and tax benefits similar to 401(k)s.
![Cash is arranged to form a heart shape.](https://cdn.mos.cms.futurecdn.net/3oK9tGoE8PeGkRhHsxXfKW-415-80.jpg)
As the economy continues to ebb and flow in a post-COVID world, consumers are looking for straightforward financial wins, but often they aren’t sure what moves to make or what tools to use. Most Americans are aware of 401(k)s, even though 40% of Americans do not fully understand the fees and the rules surrounding them.
Like 401(k)s, there is another type of account that can bring financial benefits to a large number of Americans and is rapidly growing in popularity. It’s called a donor-advised fund (DAF), which is a tax-deductible financial account for charitable giving.
What a Donor-Advised Fund Can Do for You
A reader might be asking, “How could that be beneficial to me?” Just like a 401(k) makes retirement simpler, a DAF simplifies giving while providing powerful tax advantages and investing options. Here are three consumer benefits donor-advised funds offer:
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-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.
- First, donor-advised funds give consumers one place for all their giving (on one consolidated tax receipt), like a checking account but for philanthropy.
- Second, consumers can easily donate stock, cryptocurrency or other assets into their account and avoid capital gains tax while distributing proceeds to any charity.
- Third, because dollars are eligible for tax advantages the moment they hit the account rather than when they are sent to charities, donors can take the time they need to discover high-impact charitable opportunities without worrying about tax implications. Most DAFs allow the money to be invested while it is in the account, and it can grow tax free.
All of this allows for greater opportunity to be smart about your giving.
More than the financial smarts, DAFs help you give more purposefully, which can help you live a richer life. The act of giving is associated with many aspects of psychological and relational well-being, and this type of account enables greater flexibility for donors to participate in giving, even if a donor isn’t sure yet what cause to support.
Corporate donors are also catching on. DAFs are increasingly being used to support workplace giving programs as an alternative to federated funds (e.g. the United Way) and corporate foundations.
How DAFs Have Improved Recently
In recent years, donor-advised funds have become more straightforward to create and use. Many sponsors now offer low-fee exchange-traded funds (ETFs) as investing options, and because of increases in technology, administrative fees and minimums to open have come down. Additionally, they don’t require sensitive information like Social Security numbers to set up, and each sponsor ensures each charity is in good standing with the IRS. Startups in the space, such as Charityvest, are accelerating this movement to make DAFs more delightful and to lower fees.
It’s no surprise DAFs are growing quickly. In one year alone, from 2019 to 2020, the number of DAF accounts jumped 16.3% to more than 1 million.
At Charityvest, we’ve witnessed success firsthand through our growth over the past three years. We started Charityvest because we wanted to make giving more purposeful, allowing for better planning in how and where people give. Users can make tax-deductible contributions of cash, stock, complex assets or cryptocurrency into their fund, and then direct those funds to over 1.4 million nonprofits in the U.S., while keeping their giving on a single consolidated tax receipt. With the introduction of low-fee ETF portfolios earlier this year, users can invest their fund balance to grow their giving, with all-in fees 25%-50% lower than the leading providers in the DAF space. Simply, the idea was to make giving easier, and more purposeful, and we believe DAFs do that.
The industry is experiencing remarkable growth as individuals and institutions increasingly see DAFs as their preferred way to give and facilitate giving. The opportunity to become more purposeful and streamline giving is a powerful combination. Technology and innovation are pushing these accounts to more people, making tax-smart, easy, thoughtful giving available to everyone who wants to donate to charities, in the same way the 401(k) did for retirement.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Stephen Kump is CEO of Charityvest, a modern donor-advised fund (DAF) technology company making purposeful generosity more accessible and frictionless for all. Prior to Charityvest, Stephen worked for over 10 years as a consultant to nonprofit organizations, philanthropists, corporate leaders and private equity investors, most recently with Bain & Company. He is a former U.S. Army cavalry officer and holds an MBA from the Yale School of Management.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published