Author Topic: Donor Advised Fund?  (Read 4106 times)

I'm a red panda

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Donor Advised Fund?
« on: December 20, 2017, 08:40:26 AM »
The Frugalwoods blogpost today was the first time I've heard of a donor advised fund.

I don't know if we will be itemizing in the future with the new tax code...but we are expecting a significant amount of money in the next few days. Does anyone else have opinions on a DAF for charitable giving? We'd set up so we can put on this years taxes, which will be itemized.

robartsd

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Re: Donor Advised Fund?
« Reply #1 on: December 20, 2017, 09:20:58 AM »
If I understand correctly the other advantage of DAF is if you have money you know you want to use for charity but do not know which charities you want to give to. You can contribute to charity now for the tax benefit, but control which charity benefits later.

L.A.S. can securities held in a DAF be transfered directly to a charity that is set up to receive securities or is that against the rules? Not that it would have any benefits to the donor at that point.

For me, I regularly donate to my church and have no taxable brokerage account, so I'm just making January (and possibly Feburary) contributions early.

sherr

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Re: Donor Advised Fund?
« Reply #2 on: December 20, 2017, 10:05:21 AM »
L.A.S. can securities held in a DAF be transfered directly to a charity that is set up to receive securities or is that against the rules? Not that it would have any benefits to the donor at that point.

I don't know, but there wouldn't really be a point. The point of donating securities directly is that you never have to pay capital gains tax on the amount that it appreciated. That's why charities set up to allow it; it's to convince donors to give them more, not because it directly benefits the charity at all. And you *can* donate securities to your DAF.

Just a note though, if you want to set up a DAF you need to get a move on. I did it this year and donated securities to it, but I started at the beginning of November. It can take weeks for transfers to complete, so you might want to call and ask them which dates are the relevant ones for tax purposes (initiation of the transfer or completion of the transfer?).

sherr

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Re: Donor Advised Fund?
« Reply #3 on: December 20, 2017, 10:09:45 AM »
Oh, from L.A.S's link:

Quote
To be eligible for a yearly tax break, you may need to initiate your donation as early as November. Please note that some assets take longer to accept and process than others. Please call us with any questions regarding which assets we accept and the time required for acceptance and processing.

Contributions must be received by December 31 to be effective for 2017. Please call us today so we can walk through the next steps to meet the December 31 deadline.

So definitely call and talk to them before you do anything at this late date.

I'm a red panda

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Re: Donor Advised Fund?
« Reply #4 on: December 20, 2017, 10:12:01 AM »


Just a note though, if you want to set up a DAF you need to get a move on. I did it this year and donated securities to it, but I started at the beginning of November. It can take weeks for transfers to complete, so you might want to call and ask them which dates are the relevant ones for tax purposes (initiation of the transfer or completion of the transfer?).

Thanks- good to know.

We funded a different account yesterday and the transfer was only 1 day.

I think we've decided we don't have enough time to think about this, so we probably won't do it.

boarder42

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Re: Donor Advised Fund?
« Reply #5 on: December 20, 2017, 10:21:56 AM »
https://forum.mrmoneymustache.com/taxes/let%27s-talk-about-dafs/

thread i started a couple months ago when this tax plan started to materialize

there is a bogleheads wiki link to DAFs in it

sol

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Re: Donor Advised Fund?
« Reply #6 on: December 20, 2017, 12:01:26 PM »
I think you can set up a new DAF and donate appreciated stock in a single day, if you're doing it within a single brokerage.  Like funding a DAF at Fidelity with shares already at Fidelity.

robartsd

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Re: Donor Advised Fund?
« Reply #7 on: December 20, 2017, 12:03:03 PM »
L.A.S. can securities held in a DAF be transfered directly to a charity that is set up to receive securities or is that against the rules? Not that it would have any benefits to the donor at that point.
I'm not sure.  I don't think it would have any benefit for the donor or the donee.  Here is a link to the Fidelity charitable account DAF information:
No benefit for the donor. The donee would have the option of continuing to hold the security until they decide to cash out, so in a rare edge case that the donee wants to remain invested in the asset at the time of donation it would avoid fees associated with selling/buying.

boarder42

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Re: Donor Advised Fund?
« Reply #8 on: December 20, 2017, 12:23:40 PM »
I think you can set up a new DAF and donate appreciated stock in a single day, if you're doing it within a single brokerage.  Like funding a DAF at Fidelity with shares already at Fidelity.

Correct - i just called fideilty and ended up setting my DAF up with vanguard b/c thats where my money is -

You can do a DAF to DAF transfer - which i'll do next year - this will allow me to take advantage of Fidelities lower giving limits.

just has a 25k entrance fee on vanguards side.

robartsd

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Re: Donor Advised Fund?
« Reply #9 on: December 20, 2017, 01:18:36 PM »
just has a 25k entrance feeminimum on vanguards side.
Relative to the investment fees on Vanguard's low cost index funds, the annual administrative fees for the first $1M in a DAF is high - 0.6% on the first $500k, 0.4% on the next $500k.

katsiki

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Re: Donor Advised Fund?
« Reply #10 on: December 20, 2017, 01:37:52 PM »
Can you pay any non-profit?  I could not find a list or search function on fidelity's web site.  I want to be sure my primary charities are "available". 

This may be a silly question!

Phenix

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Re: Donor Advised Fund?
« Reply #11 on: December 20, 2017, 02:04:46 PM »
Can you pay any non-profit?  I could not find a list or search function on fidelity's web site.  I want to be sure my primary charities are "available". 

This may be a silly question!

https://www.fidelitycharitable.org/guidance/research-charities.shtml
Look under Tools and resources to research which charities are available.

sherr

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Re: Donor Advised Fund?
« Reply #12 on: December 20, 2017, 02:33:19 PM »
Can you pay any non-profit?  I could not find a list or search function on fidelity's web site.  I want to be sure my primary charities are "available". 

This may be a silly question!

Yes, as long as it's a 501(c)(3) public charity (eg. not a private foundation). Which is why:

Relative to the investment fees on Vanguard's low cost index funds, the annual administrative fees for the first $1M in a DAF is high - 0.6% on the first $500k, 0.4% on the next $500k.

Because if your charity (say a local church or something) is not already on their list they have to do a 1-time verification that it's actually a charity. So the people / administration costs are higher.

I'm a red panda

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Re: Donor Advised Fund?
« Reply #13 on: December 20, 2017, 02:40:15 PM »
I think you can set up a new DAF and donate appreciated stock in a single day, if you're doing it within a single brokerage.  Like funding a DAF at Fidelity with shares already at Fidelity.

I don't have a fidelity account, but I called TIAA and their deadline was a week ago.  Vanguard's is tomorrow.  Either can fund cash until the end of the year.

I'm still of 2 minds. It's a lot of money to move around without a lot of research, but it does seem like a useful tool.  The fees do seem really high though.

sherr

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Re: Donor Advised Fund?
« Reply #14 on: December 20, 2017, 02:48:10 PM »
I'm still of 2 minds. It's a lot of money to move around without a lot of research, but it does seem like a useful tool.  The fees do seem really high though.

Heh, I had the same reaction in November. To me it came down to:

1) I know I'll give this money away at some point in my life.
2) I don't need it now.
3) A 0.6% annual fee is not actually that much. The tax advantage of setting up the DAF is going to be much larger for me. And the growth of the fund in the DAF will far outstrip the fee.

So why not?

Even if you don't decide to do it this year you may want to consider it in the future. You may want to (for example) donate 5-years-worth of donations in one year and get a big itemized tax deduction, rather than donating each year and never having enough in any calendar year to outweigh the larger standard deduction.
« Last Edit: December 20, 2017, 02:50:48 PM by sherr »

katsiki

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Re: Donor Advised Fund?
« Reply #15 on: December 20, 2017, 03:17:43 PM »
Thanks to everyone who replied to my question.  I'm still on the fence but leaning toward pulling the trigger.

I'm a red panda

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Re: Donor Advised Fund?
« Reply #16 on: December 20, 2017, 03:31:03 PM »
OK- here's my next question.
Is there a large advantage to funding this with funds I already have at Vanguard vs. with cash at TIAA?

Vanguard says that they have a $250 fee if your fund has less than 15,000 in it in March.  If we contribute $25,000 we likely won't contribute again for a number of years, since the minimum is $5,000, but we would want to fund grants in the meantime, so our account would probably drop below that.  Vanguard's DAF's seem designed for someone a lot richer than me... 

We've never sold anything we have in our index funds, so the whole "cost basis" and tax implications are really beyond me. 

sol

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Re: Donor Advised Fund?
« Reply #17 on: December 20, 2017, 03:49:39 PM »
OK- here's my next question.
Is there a large advantage to funding this with funds I already have at Vanguard vs. with cash at TIAA?

Yes there is.  By donating appreciated stock (and potentially buying an equal amount with cash today) you reduce the taxes you will someday owe when you sell stock from that account.  You convert all of your gains this far into a tax free gift, resetting your cost basis with today's new purchase, converting part of that wealth from "gains" to "principal" and thus avoiding any tax on it.
« Last Edit: December 20, 2017, 05:44:51 PM by sol »

sherr

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Re: Donor Advised Fund?
« Reply #18 on: December 20, 2017, 04:30:29 PM »
OK- here's my next question.
Is there a large advantage to funding this with funds I already have at Vanguard vs. with cash at TIAA?

Yes there is.  By donating appreciated stock (and potentially buying an equal amount with cash today) you reduce the taxes you will someday owe when you sell stock from that account.  You convert ask of your gains this far into a tax free gift, resetting your cost basis with today's new purchase, converting part of that wealth from "gains" to "principal" and thus avoiding any tax on it.

As a simple example with made up numbers:
Scenario 1:
1) You contributed $10k to your Vanguard account at some point in the past. Its present value is $25k.
2) You give $25k in cash to your DAF this year, which you can deduct from your income for tax purposes.
3) At some year in the future you sell your Vanguard mutual fund that now has a value of $50k. You owe capital-gains tax on the difference from what you bought it at: $40k.

Scenario 2:
1) You contributed $10k to your Vanguard account at some point in the past. Its present value is $25k.
2) You transfer that $25k of mutual fund shares to your DAF this year, which you can deduct from your income for tax purposes.
3) You use your $25k in cash to buy a Vanguard mutual fund.
4) At some year in the future you sell your Vanguard mutual fund that now has a value of $50k. You owe capital-gains tax on the difference from what you bought it at: $25k.

Both scenarios are identical in terms of how much money you had and how much you gave away at what time, but the second one can lead to a lower tax burden because of the preferential tax treatment of not having to pay capital-gains tax on shares you donate. All of the above applies to giving shares directly to charities too, but not all charities are set up to receive them. With a DAF suddenly you can get the benefit for every charity, which is a very nice side-benefit in addition to the "choosing which year to itemize all your charitable giving in" main benefit.

boarder42

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Re: Donor Advised Fund?
« Reply #19 on: December 20, 2017, 04:38:12 PM »
Sherr stunned that up perfectly

sherr

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Re: Donor Advised Fund?
« Reply #20 on: December 20, 2017, 04:43:03 PM »
Sherr stunned that up perfectly

Lol, I love it.

Dicey

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Re: Donor Advised Fund?
« Reply #21 on: December 20, 2017, 04:54:58 PM »
Say I'm going to do this tomorrow at Fidelity. Say I'll put 10k in. What Fidelity funds do I choose?

CanuckExpat

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Re: Donor Advised Fund?
« Reply #22 on: December 20, 2017, 05:02:17 PM »
DAFs are great for people who are close to FIRE, but plan to continue giving while retired. You can front load your contributions and claim charitable deduction in last high income year

sherr

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Re: Donor Advised Fund?
« Reply #23 on: December 20, 2017, 05:06:38 PM »
Say I'm going to do this tomorrow at Fidelity. Say I'll put 10k in. What Fidelity funds do I choose?

Well the wording will be slightly less definite than that. It's a Donor Advised Fund; you've already given all this money away to a charitable organization (Fidelity Charitable). But they'll give you 15 or 20 options on different asset allocations / fund options and you can "Recommend" how you think they should invest it. I did mine 100% in the "Total Market Index Pool", which is basically FSTMX, but you can choose your own allocation / investment choices same as you would your regular Fidelity account.

But that's worth calling out specifically, you are giving the money away. Once you donate to a DAF you can never get it back for any reason.
« Last Edit: December 20, 2017, 05:09:11 PM by sherr »

I'm a red panda

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Re: Donor Advised Fund?
« Reply #24 on: December 20, 2017, 05:09:08 PM »
Well my net worth just dropped $25k.
We funded it with VTSAX and will rebuy tomorrow.

CanuckExpat

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Re: Donor Advised Fund?
« Reply #25 on: December 20, 2017, 05:19:56 PM »
Well my net worth just dropped $25k.
We funded it with VTSAX and will rebuy tomorrow.

Awesome. Congratulations. We pulled the trigger on a DAF with Vanguard Charitable a couple years ago and have been very happy we did it

bigfoot

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Re: Donor Advised Fund?
« Reply #26 on: December 22, 2017, 09:42:17 AM »
Regarding vanguard's deadline.   As someone else already said - The list of deadlines on their website says the deadline was the 21 to transfer vanguard mutual funds.   

However there is the following footnote "Contributions of securities and mutual funds held at Vanguard entered online with electronic authorization (connecting through to Vanguard.com), can be received through end of day December 31st for a 2017 deduction."   

I'm confused - can anyone clarify?  Is the 31st deadline if you already have a DAF account perhaps?




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boarder42

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Re: Donor Advised Fund?
« Reply #27 on: December 22, 2017, 10:38:51 AM »
If you're transferring from an outside brokerage like Fidelity to vanguard or vice versa the deadline was Nov 21 to make sure that the transfer happened this year. If you transferring from vanguard to vanguard or Fidelity to Fidelity. You should be able to do that thru the end of the year.

tj

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Re: Donor Advised Fund?
« Reply #28 on: December 23, 2017, 12:41:13 PM »
I transferred $17,000 of cash into a Fidelity DAF just over a year ago. I  had it 100% in a cheap Total Stock Market index fund. because of the market kept going up this year, I was able to write a lot of grants for unexpected emergencies like the hurricanes in Houston.


I didn't have any securities with long term gains when I opened mine - I specifically did it for tax arbitrage, I had a high income year, had been coming off a real estate sale. I highly recommend them -evenmoreso if you have long term gains. The 0.60% fee is nothing, and as long as you hae more than $17k in the fund, you won't pay more than that to adminster it.


Plus another perk is you can more easily give anonymously so that you don't get spammed with further donation requests.

Dicey

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Re: Donor Advised Fund?
« Reply #29 on: December 23, 2017, 01:20:42 PM »
Based in part on this thread, I went online and opened a DAF at Fidelity. They have a different name for it. Look for keyword "Giving". Anyway, for new money, once you've set up an account, you can fund until 4:00 pm EST on Dec. 28th. Also, if the check has your account number on it, you can mail a check, postmarked by Dec. 31st. You don't have to designate where the money goes until it's in your account.

Still trying to convince DH it's the way to go, but it's not easy. I want to fund 50% of our AGI for 2017, but that's freaking him out, despite a visit to our CPA yesterday morning.

sol

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Re: Donor Advised Fund?
« Reply #30 on: December 23, 2017, 01:28:08 PM »
I want to fund 50% of our AGI for 2017, but that's freaking him out, despite a visit to our CPA yesterday morning.

I also wanted to donate 50% of my gross income, after my chosen retirement date.  But the DAF messed everything up by motivating me to give this tax year instead of next.  The Vanguard minimum is $25k, and I'm not sure I can stay at my job long enough to earn $50k after my FIRE date.

Which basically means I'm effectively giving away 100% or more of my salary past my March 30th target date.  It's all bookkeeping trickery anyway, since the money is already gone and I'll work as long as I damn well please, but I was mentally allocating half of my salary past that date to charity.  I may need to revisit that plan, one way or another.

On the bright side, my spouse was very understanding of the plan.  There was some hesitation, but I assured her that I wouldn't bail on my job until she felt financially secure, and that seemed to help.  Her concern wasn't in giving a large sum to charity, it was in potentially impoverishing our family to do it.  You might try a similar tactic with your partner. 

chasesfish

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Re: Donor Advised Fund?
« Reply #31 on: December 23, 2017, 01:28:10 PM »
I'll add on to this, opened on last year through Fidelity and enjoyed it.  Added another 7k to it this year.  The "grant" process is very easy

CanuckExpat

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Re: Donor Advised Fund?
« Reply #32 on: December 23, 2017, 02:11:28 PM »
We have a donor advised fund with Vanguard Charitable, very happy with DAF, Vanguard Charitable, giving to charity etc.

I'll add one anecdote about the timing of large contributions: we made the initial minimum $25k contribution in our second last working year, assuming it would be our highest income, most tax efficient, etc. The plan was that in our last working year, we would make some smaller contribution, based on the exact amount of income we made that year (once you open a DAF with VG Charitable, additional contributions can be as small as $5,000)

However, I found that in our last working year, with all the different balls in the air after FIREing, I never found time to do the exact calculation to see how much I wanted to contribute, and to my embarrassment, after both of us quitting our jobs, I got uncomfortable with the idea of making another not-even-that-large contribution in that year (with hindsight, stock market soared, we made more income in retirement, and spent less than planned.. we could easily have afforded it, but psychologically was hard at that time)

So I'm glad we made that large contribution in our second last working year, when we didn't even shrug it off, and got it out of the way.