Author Topic: Let's talk about DAFs  (Read 2177 times)

boarder42

  • Walrus Stache
  • *******
  • Posts: 6061
Let's talk about DAFs
« on: November 03, 2017, 04:05:49 AM »
Spin off from the tax discussion. If charitable contributions end up above the line many here both pre and post fire will now have to change their donation plans. Maybe quickly. So let's dig in to DAFs.

http://jlcollinsnh.com/2012/02/08/how-to-give-like-a-billionaire/

Some comments have been made about Fidelity having much lower limits and similar fees to vanguard. Please transfer your info here from the tax change thread if you would.

Best super bonuses on Credit cards right now - ask me how to Mfg spend to meet the sign up bonus

1. Delta Gold 60k miles Ends 1/31/2018
2. Delta Platinum - 70k miles - Ends 1/31/2018

Delta Business Gold - Ends 1/31/2018

Join Personal Capital - We each get 20 bucks!!
 https://www.talkable.com/x/StjGrn

Need2Save

  • Stubble
  • **
  • Posts: 165
    • Visit us at our Blog
Re: Let's talk about DAFs
« Reply #1 on: November 03, 2017, 06:50:10 AM »
We recently posted about opening a Donor-Advised Fund https://need2save.com/2017/10/funding-maintaining-a-donor-advised-fund/ with links to Jim Collin's post and a few others like Physician on Fire. 

With the possibility that many families would not have sufficient charitable giving to continue to itemize their federal taxes in the near future, we feel even better about doing this now while we still received a benefit for the deduction in 2017.  We will continue to add to our fund, though while we are still working, and then let it fund charitable giving during our early and traditional retirement years. I really like the idea of letting the fund have it's own SWR as we distribute this in the future with tax-free growth.

We opened our DAF with Fidelity and it was relatively easy with a minimum contribution of $5,000.  Vanguard's minimum is $25,000 which was a little higher than we wanted to fund this year. 

Daisy

  • Handlebar Stache
  • *****
  • Posts: 1633
Re: Let's talk about DAFs
« Reply #2 on: November 03, 2017, 09:36:10 AM »
Thanks for starting this thread! I was already thinking about starting a DAF this year to take advantage of my last year of high income even before this tax bill was proposed, but I was busy with other FIRE prep stuff. It sounds like I need to prioritize this ASAP and get it done this year.

Here is a snippet of my thoughts and others' replies from the tax thread:

d) If this passes by mid December, I would expect major charities (especially DAFs) to be flooded with donations.  I wouldn't wait until December to open that DAF, as the custodians are swamped at year end even during "normal" years.  I wish they had changed it so that QCD's could be used to fund DAFs.

My wife and I have already discussed moving all of our planned lifetime charitable donations into the next eight weeks(!), in order to get the tax benefit of making deductible contributions to a DAF.  Next year and every year after, there would be no tax incentive for charitable giving, or at the very least a lot less benefit because your first $24k of giving each year would not be tax deductible.

I may go this route too. I don't know quite enough about Donor Advised Funds. The little I read, it made it seem like Vanguard would choose the charities the money goes to? This can't be right. I only skimmed over it during my last working days a month ago and now that I am FIREd I should look at this before the end of the year.

It would be a good time for me to do it this year as well, as I have more taxable income this year due to working most of the year, rather than the next few years while FIREd. I could get a big tax break on this for this year.

Can someone give a quick tutorial on DAFs? I thought it would work that I would put money in a DAF and then I could choose which charities the money would go to.

You choose the charities and what funds to put the money into. I opened a Vanguard account last year (my last year of W2 income). Take the deduction in the year that you give the money, donate as you go, $500 minimum donation. $25K donation to start and then $5K increments later. It has worked very well.

Here is JLCollins from a few years ago...http://jlcollinsnh.com/2012/02/08/how-to-give-like-a-billionaire/

Thanks!

I just saw this on Vanguard's site. For cash donations to the DAF, you can deduct up to 50% of AGI. It's 30% for appreciated shares. I'm not sure what the max deductability is if you do a combo of cash and shares. Are the 50% and 30% mutually exclusive? If so, I could put more into the DAF and have this fund my charitable contributions, possibly for the rest of my life. And I would get a nice tax break this year.

https://www.vanguardcharitable.org/resource_center/taxes

Also, the jhcollins article comments state that the minimum grant you can give to a charity for the Vanguard DAF is $500, whereas for Fidelity Charitable it is $50. I can't find these details on their respective sites. Can anyone confirm?

Daisy

  • Handlebar Stache
  • *****
  • Posts: 1633
Re: Let's talk about DAFs
« Reply #3 on: November 03, 2017, 09:37:39 AM »
And FIREchiefsr's excellent response:

d) If this passes by mid December, I would expect major charities (especially DAFs) to be flooded with donations.  I wouldn't wait until December to open that DAF, as the custodians are swamped at year end even during "normal" years.  I wish they had changed it so that QCD's could be used to fund DAFs.

My wife and I have already discussed moving all of our planned lifetime charitable donations into the next eight weeks(!), in order to get the tax benefit of making deductible contributions to a DAF.  Next year and every year after, there would be no tax incentive for charitable giving, or at the very least a lot less benefit because your first $24k of giving each year would not be tax deductible.

I may go this route too. I don't know quite enough about Donor Advised Funds. The little I read, it made it seem like Vanguard would choose the charities the money goes to? This can't be right. I only skimmed over it during my last working days a month ago and now that I am FIREd I should look at this before the end of the year.

It would be a good time for me to do it this year as well, as I have more taxable income this year due to working most of the year, rather than the next few years while FIREd. I could get a big tax break on this for this year.

Can someone give a quick tutorial on DAFs? I thought it would work that I would put money in a DAF and then I could choose which charities the money would go to.

Ultra quick.  Feel free to ask for more details:

a) you open a DAF with $5000 minimum at Fidelity (the $5000 is an irrevocable charitable gift to a legit 501c3 charity (i.e. your DAF).
b) you manage the investments (many low cost Fido index funds)
c) you and anybody you appoint recommends grants to whichever charity you wish to benefit
d) Fidelity Charitable confirms that it is a legit charity and sends them a check (you can choose to have the charity know who you are or not)
e) Fidelity charges you 0.6% average balance administrative fee (minimum $100) each year
f) you receive a tax deduction for when you donate the money to the DAF (i.e. before the end of 2017)
g) if Fido doesn't already have your charity on their "list," they require a few days to process (I have a monthly grant to my local, small, non-denominational church and it has worked without a hitch)

VG is also used by many, but IIRC the minimum is $25000.  Fees are roughly the same for typical balances.

Daisy

  • Handlebar Stache
  • *****
  • Posts: 1633
Re: Let's talk about DAFs
« Reply #4 on: November 03, 2017, 10:26:30 AM »
I called Fidelity and they verified that their initial contribution limit is $5000 and their minimum grant size is $50. He said Vanguard also requires an additional contribution after the $25000 initial contribution. I don't remember seeing that on Vanguard's site.

Regardless, I think I am going with Fidelity due to the $50 grant minimum. $500 at Vanguard is too high for some of my charities.

He said the 50% AGI cash deduction limit and 30% AGI stock deduction limit are not mutually exclusive. If I understood him correctly, you are still capped at 50% AGI even if you contribute a combo of cash and stock.

I think I am going to go all in and contribute 50% of my AGI. This will reduce my AGI to the 15% tax bracket for the year, which means I can take advantage of zero capital gains taxes on any stock I sell this year. Double win!
« Last Edit: November 03, 2017, 10:44:09 AM by Daisy »

Daisy

  • Handlebar Stache
  • *****
  • Posts: 1633
Re: Let's talk about DAFs
« Reply #5 on: November 03, 2017, 10:40:48 AM »
I just opened the Fidelity account. It only took like 2 minutes. Nice!

boarder42

  • Walrus Stache
  • *******
  • Posts: 6061
Re: Let's talk about DAFs
« Reply #6 on: November 03, 2017, 10:47:22 AM »
good to know its short and simple - how can you fund it.  I'd like to transfer some of my taxable at vanguard straight into there with out selling and creating a taxable event.  I would think this is possible.

I'm going to wait to set mine up until we're sure they arent going to pull charitable out and put it above the line.  Charities have got to be pulling out the stops with lobbyist on this right now and i think it will get rectified.
Best super bonuses on Credit cards right now - ask me how to Mfg spend to meet the sign up bonus

1. Delta Gold 60k miles Ends 1/31/2018
2. Delta Platinum - 70k miles - Ends 1/31/2018

Delta Business Gold - Ends 1/31/2018

Join Personal Capital - We each get 20 bucks!!
 https://www.talkable.com/x/StjGrn

Daisy

  • Handlebar Stache
  • *****
  • Posts: 1633
Re: Let's talk about DAFs
« Reply #7 on: November 03, 2017, 11:20:59 AM »
good to know its short and simple - how can you fund it.  I'd like to transfer some of my taxable at vanguard straight into there with out selling and creating a taxable event.  I would think this is possible.

I'm going to wait to set mine up until we're sure they arent going to pull charitable out and put it above the line.  Charities have got to be pulling out the stops with lobbyist on this right now and i think it will get rectified.

I'm just going to transfer cash from my bank since I will be in the 15% tax bracket anyways and will have zero cap gains taxes, but I do see an option to fund from a non-Fidelity brokerage account.

I'm going through with it regardless of whether this bill passes because I just FIREd and won't have a lot of income in the coming years. I was going to play the standard deduction game originally and double up on property taxes and charities every couple of years, but now with the increased standard deduction I don't think I would really exceed it. I have a feeling, if nothing else, the increased standard deduction will pass.

By creating the DAF this year I will probably save about $8k in income tax this year.

boarder42

  • Walrus Stache
  • *******
  • Posts: 6061
Re: Let's talk about DAFs
« Reply #8 on: November 03, 2017, 11:28:30 AM »
good to know its short and simple - how can you fund it.  I'd like to transfer some of my taxable at vanguard straight into there with out selling and creating a taxable event.  I would think this is possible.

I'm going to wait to set mine up until we're sure they arent going to pull charitable out and put it above the line.  Charities have got to be pulling out the stops with lobbyist on this right now and i think it will get rectified.

I'm just going to transfer cash from my bank since I will be in the 15% tax bracket anyways and will have zero cap gains taxes, but I do see an option to fund from a non-Fidelity brokerage account.

I'm going through with it regardless of whether this bill passes because I just FIREd and won't have a lot of income in the coming years. I was going to play the standard deduction game originally and double up on property taxes and charities every couple of years, but now with the increased standard deduction I don't think I would really exceed it. I have a feeling, if nothing else, the increased standard deduction will pass.

By creating the DAF this year I will probably save about $8k in income tax this year.

nice ... thanks for the info.  i'm in a bit of a different boat b/c we have 5 years left so if this falls apart or they move charitable above the line(like they should) then we wont need to do this.
Best super bonuses on Credit cards right now - ask me how to Mfg spend to meet the sign up bonus

1. Delta Gold 60k miles Ends 1/31/2018
2. Delta Platinum - 70k miles - Ends 1/31/2018

Delta Business Gold - Ends 1/31/2018

Join Personal Capital - We each get 20 bucks!!
 https://www.talkable.com/x/StjGrn

PathtoFIRE

  • Bristles
  • ***
  • Posts: 338
  • Age: 38
  • Location: Dallas
Re: Let's talk about DAFs
« Reply #9 on: November 03, 2017, 12:46:16 PM »
While most of you will be concerned about the new tax proposal on the lower end, we are in a little different situation, and I'd like to both follow what you all have to say and start a small sideline discussion for those in the higher brackets and AMT.

We itemize now and will continue to do so under the new proposal. In addition, our marginal rate right now is a moving target (nominally 33%, but we are solidly in AMT territory, so 28%, but we are still in the exemption phase-out area, so 28%*1.25=35%, but then you need to add the additional Medicare tax and net investment tax, so maybe 37%???). Under the new proposal, we would be solidly in the 35% and AMT, additional Medicare, and net investment would all go away. So by my estimates, for us and those in a similar situation, there is a negligible difference for marginal rates and therefore no new urgency to make a decision.

Some other considerations are:
-does the new proposal alter AGI calculations with regards to the DAF limits? The amount we were considered moving to a DAF was right close to 30% of AGI, and it is all appreciated funds that I no longer add to, so changes may necessitate staggering over 2 years (or more for some of you)
-obviously location becomes far more critical, as moves both in state and out will alter the deduction landscape for us and others

Undecided

  • Pencil Stache
  • ****
  • Posts: 991
Re: Let's talk about DAFs
« Reply #10 on: November 03, 2017, 01:23:51 PM »
We itemize now and will continue to do so under the new proposal. In addition, our marginal rate right now is a moving target (nominally 33%, but we are solidly in AMT territory, so 28%, but we are still in the exemption phase-out area, so 28%*1.25=35%, but then you need to add the additional Medicare tax and net investment tax, so maybe 37%???). Under the new proposal, we would be solidly in the 35% and AMT, additional Medicare, and net investment would all go away. So by my estimates, for us and those in a similar situation, there is a negligible difference for marginal rates and therefore no new urgency to make a decision.

I though that the NIIT would stay (the WaPo analysis agrees), and it's not obvious to me that the Medicare payroll surtax would be terminated (although I'm not claiming to be sure about that).


madamwitty

  • Bristles
  • ***
  • Posts: 270
  • Age: 35
  • Location: SoCal
Re: Let's talk about DAFs
« Reply #11 on: November 03, 2017, 06:16:44 PM »
We started a DAF last year and have used it to pay for synagogue membership dues and school annual donation drive. We went with Fidelity because it had a lower minimum funding requirement. Both funding the account and requesting grants has been pretty quick and painless.

We were going to contribute more this year anyway (appreciated mutual funds) since this will be a high income year for us, and our following years will be lower earning years as we downshift leading up to FIRE. Good to know about the limits with respect to AGI.

If it hasn't been linked already, here are the end-of-year deadlines for funding a Fidelity DAF. The deadline for mutual funds held at other firms is November 27 and it does sound like good advice to me to get it in ahead of time since there may indeed be a flood of requests.

https://www.fidelitycharitable.org/what-you-can-donate/charitable-year-end-tax-deadlines.shtml

FIREchiefsr

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Let's talk about DAFs
« Reply #12 on: November 03, 2017, 06:44:42 PM »
We itemize now and will continue to do so under the new proposal. In addition, our marginal rate right now is a moving target (nominally 33%, but we are solidly in AMT territory, so 28%, but we are still in the exemption phase-out area, so 28%*1.25=35%, but then you need to add the additional Medicare tax and net investment tax, so maybe 37%???). Under the new proposal, we would be solidly in the 35% and AMT, additional Medicare, and net investment would all go away. So by my estimates, for us and those in a similar situation, there is a negligible difference for marginal rates and therefore no new urgency to make a decision.

I though that the NIIT would stay (the WaPo analysis agrees), and it's not obvious to me that the Medicare payroll surtax would be terminated (although I'm not claiming to be sure about that).

I haven't found anything in the actual draft bill suggesting any changes to the NIIT and Medicare surtax.  I think they remain as is.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 3982
  • Age: 33
  • Location: Seattle, WA
Re: Let's talk about DAFs
« Reply #13 on: November 04, 2017, 09:55:45 AM »
As I see it, the DAF has two main benefits.

The first is that it's an easy way to take a write-off for appreciated stocks without having to call up each charity and find out whether they accept stock and where to send it. You can just send the stock to one place that you know will take it, and they'll send cash to charities for you.

The second benefit is the ability to decouple the time of your tax write-off from the time of donation. In theory this sounds great to me, but the annual fees that the DAF providers charge really have turned me off so far. Fidelity and Schwab and Vanguard all skim 0.6% off the top each year, and the only added value they provide is mailing checks to charities from time to time. For me, this fee would act as an incentive to distribute the money as quickly as possible so that the charities get it instead of the DAF company. I'd feel much better about it if they charged a buck or two for each donation to cover their expenses, rather than a percentage of assets whether I make no donations that year or 100.

So for me personally, if I had a bunch of appreciated stock I wanted to donate, I'd go ahead and open a DAF account and empty it out within a year or two. I don't, so I've so far avoided opening a DAF.
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

boarder42

  • Walrus Stache
  • *******
  • Posts: 6061
Re: Let's talk about DAFs
« Reply #14 on: November 04, 2017, 11:42:06 AM »
As I see it, the DAF has two main benefits.

The first is that it's an easy way to take a write-off for appreciated stocks without having to call up each charity and find out whether they accept stock and where to send it. You can just send the stock to one place that you know will take it, and they'll send cash to charities for you.

The second benefit is the ability to decouple the time of your tax write-off from the time of donation. In theory this sounds great to me, but the annual fees that the DAF providers charge really have turned me off so far. Fidelity and Schwab and Vanguard all skim 0.6% off the top each year, and the only added value they provide is mailing checks to charities from time to time. For me, this fee would act as an incentive to distribute the money as quickly as possible so that the charities get it instead of the DAF company. I'd feel much better about it if they charged a buck or two for each donation to cover their expenses, rather than a percentage of assets whether I make no donations that year or 100.

So for me personally, if I had a bunch of appreciated stock I wanted to donate, I'd go ahead and open a DAF account and empty it out within a year or two. I don't, so I've so far avoided opening a DAF.

Under current tax code yes. Under the proposed tax code many will no longer itemize. And therefore donations to charity will not see a tax brake. So there is a very real savings overall if I can dump 25-50k in now and save 25% on it all vs what I'll be able to do next year if they don't move charitable donations above the line
Best super bonuses on Credit cards right now - ask me how to Mfg spend to meet the sign up bonus

1. Delta Gold 60k miles Ends 1/31/2018
2. Delta Platinum - 70k miles - Ends 1/31/2018

Delta Business Gold - Ends 1/31/2018

Join Personal Capital - We each get 20 bucks!!
 https://www.talkable.com/x/StjGrn

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 3982
  • Age: 33
  • Location: Seattle, WA
Re: Let's talk about DAFs
« Reply #15 on: November 04, 2017, 03:26:00 PM »
I agree that you'll be better off tax-wise if you donate money in a year when you can deduct it, compared to a year where you can't.

But for me personally, the annual fee would discourage me from stretching the eventual donations out over time. Why let Vanguard or Fidelity or Schwab take 0.6% of the money each year instead of distributing it all to charity right away?
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

sol

  • Walrus Stache
  • *******
  • Posts: 5716
  • Age: 40
  • Location: Pacific Northwest
Re: Let's talk about DAFs
« Reply #16 on: November 04, 2017, 03:47:19 PM »
I agree that you'll be better off tax-wise if you donate money in a year when you can deduct it, compared to a year where you can't.

But for me personally, the annual fee would discourage me from stretching the eventual donations out over time. Why let Vanguard or Fidelity or Schwab take 0.6% of the money each year instead of distributing it all to charity right away?

I understand your concerns, but keep in mind that we're talking about losing 0.6% per year vs saving 25% (or more) in taxes this year.  This suggests you should break even holding the DAF for up to 41 years, and it's even better than that because the up front savings stays invested and earning interest each year.

Even if you're only putting in the minimum $25k (for Vanguard) this year, in the 28% bracket that's $7000 in extra money you get to donate to charity.  You're effectively donating $25k to charity while only paying ~$18k out of pocket.  I'm willing to to pay $150 per year in fees to give away a free $7000 that otherwise would have been lost to taxes.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 3982
  • Age: 33
  • Location: Seattle, WA
Re: Let's talk about DAFs
« Reply #17 on: November 04, 2017, 05:36:14 PM »
Your post and the underlying math really only speaks to the advantage of taking a tax break on a donation as opposed to not getting one. I fully agree that the tax break gives you an extra $7,000 to donate, compared to if you couldn't deduct your donation. I'm totally on board with the idea that the lump sum donation can be a good idea if tax code changes mean you won't be able to deduct donations going forward.

That doesn't address my underlying concern though. Once you've put the money in the DAF, you have a choice between distributing it to a charity right away, or leaving it in there and having your DAF administrator skim 0.6% off the top for each year you wait. I'd be inclined to give it all away immediately. Why not?
I made a blog! https://seattlecyclone.com/

The Roth IRA was named after William Roth, who represented Delaware in the US senate from 1971-2001. "Roth" is a name, not an acronym. There's no need to capitalize the final three letters.

Paul der Krake

  • Magnum Stache
  • ******
  • Posts: 3672
  • Age: 9
  • Warned Member
Re: Let's talk about DAFs
« Reply #18 on: November 04, 2017, 07:14:25 PM »
What's the legal magic sauce that makes DAFs possible?

Would it be possible to create one's own DAF/foundation, potentially paying an attorney to deal with the administrative boilerplate?

FIREchiefsr

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Let's talk about DAFs
« Reply #19 on: November 04, 2017, 07:40:33 PM »
What's the legal magic sauce that makes DAFs possible?

Would it be possible to create one's own DAF/foundation, potentially paying an attorney to deal with the administrative boilerplate?

There's no magic.  A DAF has to be set up as a 501c3 charity, and then any donations are tax deductible in the year received.  As long as the grants are to other 501c3 charities, then it's all pretty straightforward.  We've been saying "Fidelity," but we're really talking about "Fidelity Charitable" which is in many respects an independent entity.

Those whose giving is very large do use attorneys to establish foundations, but it doesn't take much in legal fees to offset that 0.6% annual fee from Fidelity Charitable.  If you have $100K in your DAF, that's $600 per year.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

sol

  • Walrus Stache
  • *******
  • Posts: 5716
  • Age: 40
  • Location: Pacific Northwest
Re: Let's talk about DAFs
« Reply #20 on: November 04, 2017, 07:48:27 PM »
What's the legal magic sauce that makes DAFs possible?

Would it be possible to create one's own DAF/foundation, potentially paying an attorney to deal with the administrative boilerplate?

It is possible, but much more expensive.  Generally not recommended for amounts less than $250k.  Setting up a private foundation has certain advantages, though.  In the US they're usually set up as 509s, and are necessarily a 501(c)(3) exempt organizations.  They're subject to 2% excise taxes, about 1% per year expenses to administer, and are required to disperse about 5% per year but you can "disperse" it on just about anything, including paying your family members to work there (a strategy employed by the Trumps, Clintons, Gates, and Buffets among others).

From one of my old posts:
Quote
One easy option, that Nords has recommended, is to use a Donor-Advised-Fund.  This is essentially like a 401k plan that is designated for charity instead of for retirement.  You can set one up with Vanguard or Fidelity, and you retain control over the asset allocation.  Contributions are tax deductible in the year they are made (up to 50% of your AGI for cash, 30% of AGI for appreciated stock) so they are a tax-efficient way to donate to charity in your final year(s) of high income.  Your donations can then grow tax free in the fund, and you can designate distributions to 501(c)(3) organizations of your choice for the rest of your life.  This has the benefit of getting the full tax deduction when it still has value to you, while you are working.  People who don't have tax liability in retirement or don't itemize would otherwise receive no tax benefits from charitable giving, so the DAF fixes that.  If you're like me, and intend to continue your charitable donations past your working career, this plan allows you to donate more by losing less to taxes.  You effectively reclaim federal tax money (some of which is spent on social welfare programs and some not) and can then redirect it to social welfare programs of your choice.

A more difficult option is to set up a private foundation.  Foundations are non-profit organizations, unlike a DAF that is a personal account within a non-profit organization, but they otherwise have many of the same features as a DAF like up-front tax deductibility of donations (up to 30% of your AGI for cash, 20% of AGI for appreciated stock).  They also come with some additional restrictions (you must distribute at least 5% per year to charitable causes, unlike a DAF that can distribute zero) and also some additional benefits (you retain more control over where the money goes, including the ability to legally pay your family to manage the foundation or perform charitable activities).  Plus you get to name it something cool like "Sol's Giant Pile of Smugness" and then talk about your "endowment" at dinner parties.

You can do both!  If you establish a private foundation, you can then meet your 5% annual disbursement requirement by donating your donation to a DAF.  In this case, the foundation is just an intermediate holding tank.  (You only get the tax deduction once, of course.)

In either case, donating appreciated assets (stocks or real estate) totally avoids capital gains taxes.  If you're planning to donate $10,000 to charity, you can do a heck of a lot more good by donating $10,000 of old VTSMX shares from 2009 than you can by liquidating those shares and then donating the residual value out of your checking account.

Dada Almond

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: CA
Re: Let's talk about DAFs
« Reply #21 on: November 04, 2017, 09:13:13 PM »
I was already planning to open a DAF this year.  For me it makes extra sense since I am pretty likely to have the highest tax year of my working career this year.  I was already sold on the big savings on my contributions, but being able to easily skip capital gains on appreciated stock and putting multiple years worth of contributions in at once to offset a high tax year really sweeten the deal. 

Now knowing that it may be the last year it makes sense due to (admittedly uncertain) legislation I see a pretty good extra incentive to do so. 

Responding to seattlecyclone - I think it's probably a psychological benefit.  If you set a large chunk aside now and give it away over time in the annual increments you are comfortable with, you feel good about giving to charity for several/many years. 

sol

  • Walrus Stache
  • *******
  • Posts: 5716
  • Age: 40
  • Location: Pacific Northwest
Re: Let's talk about DAFs
« Reply #22 on: November 04, 2017, 09:18:15 PM »
I think it's probably a psychological benefit.  If you set a large chunk aside now and give it away over time in the annual increments you are comfortable with, you feel good about giving to charity for several/many years.

The DAF literature suggests that you have this exactly backwards.  Private foundations are required to disperse at least 5% per year, but DAFs are not.  This has resulted in thousands of little DAFs around the country that disperse zero, year after year.  Charities hate this, because it has effectively slowed the flow of funds from donors to charitable causes.  They would much prefer you donated to an existing foundation, or to the charities in year one, rather than stashing it in a DAF and then potentially ignoring for years and years.

Dada Almond

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: CA
Re: Let's talk about DAFs
« Reply #23 on: November 04, 2017, 09:36:24 PM »
I think it's probably a psychological benefit.  If you set a large chunk aside now and give it away over time in the annual increments you are comfortable with, you feel good about giving to charity for several/many years.

The DAF literature suggests that you have this exactly backwards.  Private foundations are required to disperse at least 5% per year, but DAFs are not.  This has resulted in thousands of little DAFs around the country that disperse zero, year after year.  Charities hate this, because it has effectively slowed the flow of funds from donors to charitable causes.  They would much prefer you donated to an existing foundation, or to the charities in year one, rather than stashing it in a DAF and then potentially ignoring for years and years.

Maybe I should have said "perceived psychological benefit"?  People think that's what they'll do and instead never give the money away. 

Or maybe from a more cynical perspective, people don't care about charities and just want to do whatever they can to reduce the current year's taxes even if no one benefits from the money?

FIREchiefsr

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Let's talk about DAFs
« Reply #24 on: November 04, 2017, 09:41:14 PM »
I think it's probably a psychological benefit.  If you set a large chunk aside now and give it away over time in the annual increments you are comfortable with, you feel good about giving to charity for several/many years.

The DAF literature suggests that you have this exactly backwards.  Private foundations are required to disperse at least 5% per year, but DAFs are not.  This has resulted in thousands of little DAFs around the country that disperse zero, year after year.  Charities hate this, because it has effectively slowed the flow of funds from donors to charitable causes.  They would much prefer you donated to an existing foundation, or to the charities in year one, rather than stashing it in a DAF and then potentially ignoring for years and years.

Maybe I should have said "perceived psychological benefit"?  People think that's what they'll do and instead never give the money away. 

Or maybe from a more cynical perspective, people don't care about charities and just want to do whatever they can to reduce the current year's taxes even if no one benefits from the money?

This doesn't make sense.  People "give the money away" at the exact moment that it is donated to their (or anyone else's) DAF.  It is then no longer their money but is "owned" by a charity (the DAF).  It absolutely will eventually go to a "regular" 501c3 charity.  If the person who created the DAF passes away, after so many years of inactivity the funds will be dispersed.  Why would somebody who cares only about money give away $1000 to save $350 in taxes?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

CoffeeRoyal

  • 5 O'Clock Shadow
  • *
  • Posts: 36
  • Location: Texas
Re: Let's talk about DAFs
« Reply #25 on: November 04, 2017, 09:55:10 PM »
Spin off from the tax discussion. If charitable contributions end up above the line many here both pre and post fire will now have to change their donation plans. Maybe quickly. So let's dig in to DAFs.
I opened a DAF with Charles Schwab last year. I've been pleased. It was easy to do and donations go without a hitch (as mentioned it takes a little while if the charity is new to the sponsor of the DAF).

I contributed appreciate stock (ETF's) so this way I avoided capital gains. Many larger charities can take stock contributions, but with a DAF you have much for flexibility. In the case of Charles Schwab (the only one I have direct experience with), customer service has been excellent.

I highly recommend DAF to anyone where it makes sense.

There are many DAF sponsors, but the three big ones are Fidelity, Schwab, Vanguard. Personally I would recommend Fidelity or Schwab unless you already have accounts with Vanguard.

FireLane

  • Stubble
  • **
  • Posts: 247
  • Location: NYC
Re: Let's talk about DAFs
« Reply #26 on: November 05, 2017, 02:55:21 PM »
I just opened my DAF this month.

I went with Fidelity because of their lower minimums, but my taxable holdings were with Vanguard, which made the process more complicated. Both Vanguard and Fidelity initially gave me incorrect advice about how to make the transfer before I finally found the right form to fill out. Once I faxed it in, it went through quickly and smoothly.

It makes sense to do this now, while I'm still working, so I get the tax deduction while my marginal rate is highest. Plus, if you specify that you want to donate your most appreciated lots of stock, it raises the overall basis of your taxable account and saves you paying capital-gains taxes after retirement.

Like others here, after I retire, I'm going to treat my Fidelity Charitable account as its own pot of money with its own SWR and make all my charitable donations from there. I might do 4% or even 5% per year, because if it runs out, who cares?

MDM

  • Walrus Stache
  • *******
  • Posts: 7213
Re: Let's talk about DAFs
« Reply #27 on: November 05, 2017, 03:24:35 PM »
Donor advised fund - Bogleheads has what appears to be a good comparison table for some of the major brokerages.

less4success

  • Stubble
  • **
  • Posts: 237
  • Location: Pacific Northwest
    • My journey to part-time/semi-FIRE
Re: Let's talk about DAFs
« Reply #28 on: November 05, 2017, 04:55:57 PM »
FireLane, which form did you end up needing? I want to use specific identification to donate the most appreciated shares (while later being able to sell the least appreciated ones).
« Last Edit: November 06, 2017, 09:47:44 AM by less4success »

FireLane

  • Stubble
  • **
  • Posts: 247
  • Location: NYC
Re: Let's talk about DAFs
« Reply #29 on: November 05, 2017, 06:23:33 PM »
FireLane, which form did you end up needing? I want to use specific identification to yo donate the most appreciated shares (while later being able to sell the least appreciated ones).

Yes, that's what I did too. This is the form you need:

https://www.fidelitycharitable.org/docs/Contribution.pdf

madamwitty

  • Bristles
  • ***
  • Posts: 270
  • Age: 35
  • Location: SoCal
Re: Let's talk about DAFs
« Reply #30 on: November 06, 2017, 12:17:09 PM »
FireLane, which form did you end up needing? I want to use specific identification to yo donate the most appreciated shares (while later being able to sell the least appreciated ones).

Yes, that's what I did too. This is the form you need:

https://www.fidelitycharitable.org/docs/Contribution.pdf

Thanks for the link! I'll be doing this too.

Yankuba

  • Handlebar Stache
  • *****
  • Posts: 1068
  • Location: Long Island, NY
Re: Let's talk about DAFs
« Reply #31 on: November 06, 2017, 12:39:56 PM »
PTF

FIREchiefsr

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Let's talk about DAFs
« Reply #32 on: November 06, 2017, 02:46:22 PM »
PTF

Pardon the newbie here.  What does "PTF" mean and how does it relate to the recent posts in this thread?  Thanks.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

MDM

  • Walrus Stache
  • *******
  • Posts: 7213
Re: Let's talk about DAFs
« Reply #33 on: November 06, 2017, 04:58:23 PM »
PTF

Pardon the newbie here.  What does "PTF" mean and how does it relate to the recent posts in this thread?  Thanks.
Posting To Follow.

Making a post in a thread will cause the thread to appear in "Show new replies to your posts." whenever there are such new replies.  That can be helpful or irritating.....

See also * Acronyms and Slang Frequently Used on the Forum * - Early Retirement & Financial Independence Community and Abbreviations and Acronyms - Bogleheads for others.

FIREchiefsr

  • 5 O'Clock Shadow
  • *
  • Posts: 82
Re: Let's talk about DAFs
« Reply #34 on: November 06, 2017, 10:11:36 PM »
PTF

Pardon the newbie here.  What does "PTF" mean and how does it relate to the recent posts in this thread?  Thanks.
Posting To Follow.

Making a post in a thread will cause the thread to appear in "Show new replies to your posts." whenever there are such new replies.  That can be helpful or irritating.....

See also * Acronyms and Slang Frequently Used on the Forum * - Early Retirement & Financial Independence Community and Abbreviations and Acronyms - Bogleheads for others.

Thanks.  I googled it and came up with "permanent temporary fix," which could also fit the context of some of these threads. LOL
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

boarder42

  • Walrus Stache
  • *******
  • Posts: 6061
Re: Let's talk about DAFs
« Reply #35 on: November 07, 2017, 03:26:17 AM »
Thanks for that table MDM
Best super bonuses on Credit cards right now - ask me how to Mfg spend to meet the sign up bonus

1. Delta Gold 60k miles Ends 1/31/2018
2. Delta Platinum - 70k miles - Ends 1/31/2018

Delta Business Gold - Ends 1/31/2018

Join Personal Capital - We each get 20 bucks!!
 https://www.talkable.com/x/StjGrn

CanuckExpat

  • Magnum Stache
  • ******
  • Posts: 2587
  • Age: 34
  • Location: Travelling
    • Freedom35
Re: Let's talk about DAFs
« Reply #36 on: November 11, 2017, 07:00:24 PM »
We established a DAF with Vanguard Charitable in our second last working year. That was our highest income year, so most tax bang for the buck, it was also nice not worry about an extra bit of tax optimization in our last working year.

Since we hold our taxable account with Vanguard, it was very easy and quick to donate appreciated shares. Overall we've been very happy with Vanguard charitable. I don't mind their higher minimum funding requirement, as it is more "forced" giving. They have some rational here as to why their minimum grant is $500: Why $500?. In the end, $500 has never been too much to give to a charity. They also have an article entitled Planning for your ‘philanthropy retirement’

I will agree with Seattle Cyclone that if you know exactly which charity you want to support in the future, your best bet might be to give them the lump sum donation. For us, donating to the the DAF was nice since it removed the analysis paralysis which might have postponed the large donation decision.
Retired, or just homeless and jobless.
Blog
Journal

topshot

  • 5 O'Clock Shadow
  • *
  • Posts: 86
Re: Let's talk about DAFs
« Reply #37 on: November 14, 2017, 07:02:15 AM »
Posting To Follow.

Making a post in a thread will cause the thread to appear in "Show new replies to your posts." whenever there are such new replies.  That can be helpful or irritating.....
Using the Notify button at the top (to the right of the Reply button) should accomplish at least a similar thing (email whenever the next reply is made).

On topic, I guess I've been oblivious to at least this portion of the tax proposals. I hadn't heard they were considering only allowing charitable giving over $24K to be deducted.
« Last Edit: November 14, 2017, 07:05:36 AM by topshot »

Dada Almond

  • 5 O'Clock Shadow
  • *
  • Posts: 13
  • Location: CA
Re: Let's talk about DAFs
« Reply #38 on: November 16, 2017, 10:58:31 AM »
Just opened a DAF at Schwab.  It was just as quick and easy to open and fund the account as everyone said it should be.

neverrun

  • Bristles
  • ***
  • Posts: 352
  • Location: Midwest
Re: Let's talk about DAFs
« Reply #39 on: November 16, 2017, 06:24:03 PM »
I just finished a phone call with my accountant.  He recommended looking into changing my charitable deductions to every other year so as to make sure they count at least half the time.  (I'm single so only have to get above a standard $12,000).  I was already thinking of opening a DAF so will likely do so next year.  I'll use the DAF mainly to be able to "smooth" out my giving to several small local charities that need yearly funding.

Daisy

  • Handlebar Stache
  • *****
  • Posts: 1633
Re: Let's talk about DAFs
« Reply #40 on: November 16, 2017, 10:40:39 PM »
I just finished a phone call with my accountant.  He recommended looking into changing my charitable deductions to every other year so as to make sure they count at least half the time.  (I'm single so only have to get above a standard $12,000).  I was already thinking of opening a DAF so will likely do so next year.  I'll use the DAF mainly to be able to "smooth" out my giving to several small local charities that need yearly funding.

He must have read my Standard Deductions Games thread. With the increased standard deduction, I don't think doubling up on charitable contributions and property taxes every other year will be very profitable for me, if at all. So I am maxing out my DAF with 50% AGI this year which should cover at least 10 years of charitable deductions, and save me about $8k in federal income taxes this year.

Note that I just FIREd so this is probably my last high income year, so it makes sense for me to do this.

chasesfish

  • Handlebar Stache
  • *****
  • Posts: 1793
  • Location: Texas
    • Years in the making, I created a journal!
Re: Let's talk about DAFs
« Reply #41 on: November 17, 2017, 06:12:39 AM »
I'm a huge fan of the DAF...it took me a while to stomach the initial 5k contribution.  I'm still cheap
Counting down the days until I Stop Ironing Shirts

I occasionally Blog

honeyfill

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Age: 60
  • Location: Tucson
Re: Let's talk about DAFs
« Reply #42 on: November 17, 2017, 07:47:13 AM »
We are pulling the trigger next month on a Vanguard DAF.  We already have all our accounts there and wanted to give at least 25k anyway so it all made sense.  If I had heard about these DAF's earlier in the year I would have strongly considered  a Fidelity account.  I don't want to risk a paperwork snafu spoiling my deduction in my last big income year.  (Plus I'm lazy)   I like that Fidelity  allow smaller ongoing donations. I believe Vanguard still requires a minimum 5k donation even after the initial 25k.  We are finagling our withdrawals for the first few years to qualify for ACA subsidies, so  with the DAF we can continue to contribute to charity without adding to income.