The information contained in this post has some tax discussion. I suggest you speak with an accountant and/or lawyer prior to setting anything up.
The holidays are my favorite time of the year, and since we’re headed into the holiday season now, there’s something about the season that’s made me and my family consider how we can give back. It’s something my parents always instilled in me, and something I want to continue doing with my family.
In this post, I will discuss exactly that. How my family is giving back and why we are considering opening a donor-advised fund.
The True Meaning of Thanksgiving, and Giving
The first Thanksgiving was celebrated by the Pilgrims after they finished their first harvest back in October 1621. According to Wikipedia, there was a three-day feast attended by 90 Native Americans and 53 Pilgrims.
Fast forward to today, Americans eat 46 million turkeys each Thanksgiving. More people celebrate Thanksgiving than Christmas!
For me, Thanksgiving is a time to get together with family and friends and celebrate life. But I also think about those that are not as fortunate as my family is. And that’s where the Donor Advised Fund (DAF) comes into play.
Giving Thanks and The Donor Advised Fund
In the past, my husband and I talked a lot about finding charities to give to, but we didn’t make it a priority. And because we didn’t make it a priority we didn’t donate like we wanted to.
In 2019, we made a positive change and I am so happy that we did. I am going to share a few of the things we did. My intention is not to brag or boast, but to hopefully motivate you to give to things that you care about.
Here are a few things that we cared about this past few years:
When Hurricane Harvey hit Houston, we couldn’t believe how much damage there was. It was awesome to see JJ Watt start a fund that ultimately raised over $37 million. We jumped on board and made a significant donation to the Red Cross efforts made in Houston.
One of our cousins has Cystic Fibrosis. Growing up, I also had a friend who had Cystic Fibrosis.
Finally, I work with a company that makes a vest therapy device to help children with Cystic Fibrosis. So I participated in a walk and donated to the cause.
Another close friend of mine has a niece that they recently found out has Type 1 Diabetes. Watching their journey is difficult. I wish them and anyone else that has a child with Type 1 Diabetes my best wishes. We made a donation to a recent walk that my friend’s family participated in to help with the efforts in finding a cure/better solution to live with Type 1 diabetes.
Another avenue that my family could help contribute to various charities that I recently read about is something called a Donor Advised Fund (DAF).
How Do Donor-Advised Funds Work in America?
According to the IRS website:
A donor-advised fund, or DAF, is a charitable giving vehicle sponsored by a public charity that allows you to make a contribution to that charity and be eligible for an immediate tax deduction, and then recommend grants over time to any IRS-qualified public charity.
And here’s more information:
“A donor-advised fund (DAF) is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization. This is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. The donor retains advisory privileges with respect to the distribution of funds and the investment of assets in the account.”
Tax Benefits of a Donor Advised Fund in America
Like any donation to charity, your donation is tax-deductible. You can deduct up to 50% of your adjusted gross income. Therefore, when you make a cash donation make sure you keep your receipts for tax season. If you contribute to a donor-advised fund (DAF), the tax piece is easier to track because you only contribute to one entity. From there, you can contribute to different charities.
A friend of mine was about to reduce his taxable income by contributing gains from his taxable account directly into his donor-advised fund (DAF). If you have long-term assets that have appreciated (e.g. stocks), you can donate these assets to charity. When you make this donation, it is like making a cash donation where you can deduct the amount from your annual gross income – up to 30%.
Other benefits of Donor Advised Funds
Tax-free growth. The money that you contribute to a DAF can be invested. The growth of your investments in a DAF is tax-free! Therefore, you can front-load so you can front-load your DAF now and let your money grow. Down the road, you could make your DAF act like a mini-retirement fund.
For example, using the 4% safe withdrawal rule you could contribute to a peak value of $250k in your DAF. This would allow you to safely withdraw $10k each year and distribute that to a charity of your choice. Maybe you want to fund a scholarship each year – this would enable you to do so, in theory, forever!
You have the choice to appoint who you want the money to go to.
As I mentioned earlier, using a donor-advised fund simplifies taxes because all the money is in and out of one fund.
Costs to start a Donor Advised Fund
You can set up a giving account with as little as $5,000, and then, you don’t have to maintain a minimum balance.
The Fidelity administrative fee is $100, or 0.6% of the total Giving Account Balance, and essentially covers Fidelity’s costs.
It’s important to note that there are mutual fund fees of anywhere from 0.015% to 1.11%, depending on how the funds are invested.
List of Donor Advised Funds in America
There are thousands of Donor Advised Funds to choose from, and donors have contributed upwards of $30 billion to these funds just last year alone.
Fidelity Charitable is the largest.
List of Christian Donor Advised Funds in America
Here are a few Christian Donor Advised Funds
Orchard Alliance (affiliated with the Christian and Missionary Alliance)
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2 comments
Great writeup, Jeff. I love the thought of a donor advised fund, but we never got around to setting one up. This would have been a great way to set aside money tax-free during our working years. We also contribute pretty regularly to random causes that aren’t always 501(c)(3) organizations, so locking money up in a DAF didn’t strike me as the right balance for us at the time. But I’m glad they exist and hopefully more people will take advantage of them to prolong their charitable giving.
Agreed, and thanks for the feedback, Aaron.
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