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:
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.
-
Stock Market Today: Stocks Are Positively Mixed to Open DecemberTechnology led the way Monday as two of the three main equity indexes closed higher.
-
The Best Retail Stocks to Buy This Holiday SeasonE-commerce is a growing trend, but most folks still prefer to shop in stores. That makes these dominant retail stocks worth a closer look.
-
One Good Way to Withdraw Retirement Assets (and a Bad One)Don't withdraw retirement assets haphazardly. Managing distributions intentionally can lower your taxes, conserve your wealth and reduce Medicare premiums.
-
What Is Capital Gains Tax Deferral?Spoiler alert: It's the secret weapon of savvy real estate investors. Here's how it works and details about the tools you need to do it.
-
Don't Leave Your Heirs an IRA Tax BombYour traditional IRA has served you well, but when your heirs inherit it, watch out. Consider some of these strategies to minimize their tax burdens.
-
Five Ways to Maximize Your End-of-Year PhilanthropyTo do the most good, pick the right charity, be smart about how you donate and consider giving something just as valuable as money: your time.
-
Three Options for Retirees with an Old (Forgotten) AnnuityDid you buy an annuity in the 2000s? If it’s been out of sight and out of mind since then, it's time to dust it off and start making it pay for your retirement.
-
Tax Software vs a Tax Professional: Which Should You Choose?The simple answer is a question: How complex are your taxes? Here's how you can decide whether you can go the easy route or need the help of a pro.
-
The Key to Choosing the Right Annuity: Do Your HomeworkHere are some of the pros and cons of annuities, along with an explanation of the different types. Which might work for you?
-
Are You Annoyed That You Have to Buy Car or Home Insurance?Maybe instead of considering car and home insurance extra expenses that you don't benefit from, think about how those policies protect your investment instead.
