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Is it worth it to donate appreciated shares when retirement is far off?

Posted: Wed Apr 10, 2019 4:36 pm
by JCW500
I am in my early 40s and have a fair amount of appreciated shares in my Vanguard account. I was planning on opening a DAF so I could facilitate giving shares to reset the cost basis on those shares (I use Specific Identification for cost basis). But, then, I was thinking, retirement is a long way off, and I hopefully won't have to liquidate my entire account before death. If I pass shares on to my heirs, the cost basis is stepped up so they avoid capital gains. So, is it worth it to start donating my oldest shares (with the lowest cost basis), since these are also the shares that are most likely to be passed on (and thus face no taxes)? Or, is there an advantage to start donating shares now anyway, even though I don't know when or if I will ultimately be cashing in those shares?

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Wed Apr 10, 2019 4:38 pm
by sailaway
Would you donate the money if there were tax implications to consider?

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Wed Apr 10, 2019 5:01 pm
by JCW500
I'm planning on donating the money anyway, the question is whether it's worth the extra effort to donate shares instead of cutting a check.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Wed Apr 10, 2019 5:08 pm
by TheMadEph
Also, if you are currently giving to charity or plan on doing so in the near future, then i dont see a downside in doing those transfers now when (presumably you get a better tax benefit). Why wait until you are retired or have a much lower marginal rate....i would definitely give at the highest marginal rate time if you are comfortable with your emergency fund and growth of assets otherwise (which it seems you probably are).

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Wed Apr 10, 2019 9:28 pm
by grabiner
If you are going to donate to charity anyway, donating appreciated shares makes sense. The shares you donate will be the lowest-basis shares, and thus shares which will have a large capital gain when you eventually sell them.

If you donate shares to charity, and then buy new shares with the cash you would have otherwise donated, you have just turned low-basis shares into high-basis shares. This reduces the capital gain if you need to sell those shares soon, and allows you to harvest a capital loss if the market declines after you buy the shares.

Another benefit of donating to charity is that it reduces the cost of changing your portfolio. If you have Fund A with a large capital gain, and would rather hold Fund B, or would rather hold your Fund A in an IRA, charitable donations let you get rid of the low-basis shares of Fund A.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Wed Apr 10, 2019 10:57 pm
by Stinky
grabiner wrote: Wed Apr 10, 2019 9:28 pm If you are going to donate to charity anyway, donating appreciated shares makes sense. The shares you donate will be the lowest-basis shares, and thus shares which will have a large capital gain when you eventually sell them.

If you donate shares to charity, and then buy new shares with the cash you would have otherwise donated, you have just turned low-basis shares into high-basis shares. This reduces the capital gain if you need to sell those shares soon, and allows you to harvest a capital loss if the market declines after you buy the shares.

Another benefit of donating to charity is that it reduces the cost of changing your portfolio. If you have Fund A with a large capital gain, and would rather hold Fund B, or would rather hold your Fund A in an IRA, charitable donations let you get rid of the low-basis shares of Fund A.
+1

These are all very valid arguments. Three good reasons to donate appreciated shares to a DAF, no matter what your age.

I’ve done that myself. In doing so, I avoided a bunch of capital gains taxes.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Wed Apr 10, 2019 11:57 pm
by MathIsMyWayr
I recently donated stock to a university scholarship drive. I got it through NUA and it had a nice appreciation about 5-6x. I hope it does not incur university much overhead. University got donation and I got rid of company stock - a win-win situation.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 1:08 am
by inbox788
JCW500 wrote: Wed Apr 10, 2019 5:01 pm I'm planning on donating the money anyway, the question is whether it's worth the extra effort to donate shares instead of cutting a check.
Yes! Bird in the hand. Take the tax break now and buy back if you want at a stepped up tax basis. Plus you can take the tax break you get now and let it compound more.

No, if you're just going to let it sit in the DAF. Let it go up more outside the DAF so you get a bigger tax writeoff later. But don't wait too long and run out of high tax margin to reduce.

Yes, if you need diversification and take single stock risk off your plate.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 7:26 am
by Wiggums
grabiner wrote: Wed Apr 10, 2019 9:28 pm If you are going to donate to charity anyway, donating appreciated shares makes sense. The shares you donate will be the lowest-basis shares, and thus shares which will have a large capital gain when you eventually sell them.

If you donate shares to charity, and then buy new shares with the cash you would have otherwise donated, you have just turned low-basis shares into high-basis shares. This reduces the capital gain if you need to sell those shares soon, and allows you to harvest a capital loss if the market declines after you buy the shares.

Another benefit of donating to charity is that it reduces the cost of changing your portfolio. If you have Fund A with a large capital gain, and would rather hold Fund B, or would rather hold your Fund A in an IRA, charitable donations let you get rid of the low-basis shares of Fund A.
+1

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 8:54 am
by JCW500
grabiner wrote: Wed Apr 10, 2019 9:28 pm If you are going to donate to charity anyway, donating appreciated shares makes sense. The shares you donate will be the lowest-basis shares, and thus shares which will have a large capital gain when you eventually sell them.

If you donate shares to charity, and then buy new shares with the cash you would have otherwise donated, you have just turned low-basis shares into high-basis shares. This reduces the capital gain if you need to sell those shares soon, and allows you to harvest a capital loss if the market declines after you buy the shares.

Another benefit of donating to charity is that it reduces the cost of changing your portfolio. If you have Fund A with a large capital gain, and would rather hold Fund B, or would rather hold your Fund A in an IRA, charitable donations let you get rid of the low-basis shares of Fund A.
I think my hangup is that I'm not sure that I will ever need to sell these shares. Since they are the lowest basis shares I own, and they are a small part of my portfolio, unless I deplete my portfolio completely I will not touch them. My heirs will not pay cap gains regardless of the basis. In that case, donating the shares will not yield any tax benefit. I guess I can do a little rebalancing this way, but is that worth the 100 dollars per year with Fidelity's DAF (and I don't want to deal with the inconvenience of donating shares direct to charities)

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 8:57 am
by dm200
JCW500 wrote: Wed Apr 10, 2019 5:01 pm I'm planning on donating the money anyway, the question is whether it's worth the extra effort to donate shares instead of cutting a check.
With a DAF (we use Fidelity) - there is close to zero "extra effort" vs cutting a check.

To have a "grant" to your desired charity - you can do that online in a minute or two.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 9:16 am
by letsgobobby
Deleted

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 9:30 am
by dm200
letsgobobby wrote: Thu Apr 11, 2019 9:16 am
JCW500 wrote: Wed Apr 10, 2019 5:01 pm I'm planning on donating the money anyway, the question is whether it's worth the extra effort to donate shares instead of cutting a check.
The time and energy you've spent on this thread supercede the time and energy you would have spent donating to a DAF.
:sharebeer

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 9:58 am
by senex
JCW500 wrote: Thu Apr 11, 2019 8:54 am I think my hangup is that I'm not sure that I will ever need to sell these shares. Since they are the lowest basis shares I own, and they are a small part of my portfolio, unless I deplete my portfolio completely I will not touch them. My heirs will not pay cap gains regardless of the basis. In that case, donating the shares will not yield any tax benefit. I guess I can do a little rebalancing this way, but is that worth the 100 dollars per year with Fidelity's DAF (and I don't want to deal with the inconvenience of donating shares direct to charities)
Yes, if the future happens exactly as you foresee, you'll get no net tax benefit. But if anything goes contrary to your plan/expectations, the share donation could provide a large net benefit.

One example: step-up basis at death is not guaranteed. Several times in the past 50 years there has been no step-up basis for inherited assets. (some history here: http://www.jct.gov/x-108-07.pdf ). Another example: some funds close and forcibly redeem all your shares. Oops!

Share donation does require a little extra paperwork, and yes, there are some Fidelity fees, but for those small, fixed costs you receive a great deal of future flexibility (antifragility, if you will). I think it's a no-brainer to always donate most-appreciated shares: it's an almost-free option.

edited to add: above, I assumed your annual donations are large enough that the $100 fee is not a huge percent. If you're giving a small amount, say, $500 year (i.e. the fee is 20% of your giving), then the fee & paperwork is probably overkill, and your long-term benefit is small (after 20 years of giving, you've raised your basis by at most $10k). The breakpoint depends on your personal preferences; my line would be that somewhere in the single-digit thousands per year the DAF becomes very valuable.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 10:04 am
by dm200
senex wrote: Thu Apr 11, 2019 9:58 am
JCW500 wrote: Thu Apr 11, 2019 8:54 am I think my hangup is that I'm not sure that I will ever need to sell these shares. Since they are the lowest basis shares I own, and they are a small part of my portfolio, unless I deplete my portfolio completely I will not touch them. My heirs will not pay cap gains regardless of the basis. In that case, donating the shares will not yield any tax benefit. I guess I can do a little rebalancing this way, but is that worth the 100 dollars per year with Fidelity's DAF (and I don't want to deal with the inconvenience of donating shares direct to charities)
Yes, if the future happens exactly as you foresee, you'll get no net tax benefit. But if anything goes contrary to your plan/expectations, the share donation could provide a large net benefit.
One example: step-up basis at death is not guaranteed. Several times in the past 50 years there has been no step-up basis for inherited assets. (some history here: http://www.jct.gov/x-108-07.pdf ). Another example: some funds close and forcibly redeem all your shares. Oops!
Share donation does require a little extra paperwork, and yes, there are some Fidelity fees, but for those small, fixed costs you receive a great deal of future flexibility (antifragility, if you will). I think it's a no-brainer to always donate most-appreciated shares: it's an almost-free option.
In addition, those inheriting the appreciated shares would have to know about the step-up and keep records to document what they do.

Keep things simpler for all concerned - donate to a DAF. As noted, there are many and varied benefits of using a DAF. We just LOVE Fidelity DAF. I just made two $50 (usually annual) grant requests - and made anonymous this time to the home parishes/churches in my distant hometown in memory of the deceased family members that were active participants of those churches. In one case, this is a very small country church - financially struggling - where deceased members of my family were stalwarts of the church for about a hundred years. There are still some family members active in that church - but not to the extent of the previous generations. While $50 is certainly modest - $50 is still $50 - and I do it every year. I do it, now, anonymously so they do not need to spend 55 cents on an acknowledgement letter.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Thu Apr 11, 2019 10:45 am
by TBillT
Be aware also that quite a few states have special donation programs.
For example, Virginia we get 65% state tax credit for donations to certain organizations. They call it Neigborhood Assistance Program here. So that could help you get around SALT limit on deductions. Donations of appreciated stock is a good way to participate in that program.

The new rule is that you can only deduct on Federal return, the amount not reimbursed on the state return, so 35% in my case. Prior to 2018, this was one helluva loophole as you could deduct the full amount on the Fed return actually make money donating.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Fri Apr 12, 2019 9:59 am
by JCW500
senex wrote: Thu Apr 11, 2019 9:58 am
JCW500 wrote: Thu Apr 11, 2019 8:54 am I think my hangup is that I'm not sure that I will ever need to sell these shares. Since they are the lowest basis shares I own, and they are a small part of my portfolio, unless I deplete my portfolio completely I will not touch them. My heirs will not pay cap gains regardless of the basis. In that case, donating the shares will not yield any tax benefit. I guess I can do a little rebalancing this way, but is that worth the 100 dollars per year with Fidelity's DAF (and I don't want to deal with the inconvenience of donating shares direct to charities)
Yes, if the future happens exactly as you foresee, you'll get no net tax benefit. But if anything goes contrary to your plan/expectations, the share donation could provide a large net benefit.

One example: step-up basis at death is not guaranteed. Several times in the past 50 years there has been no step-up basis for inherited assets. (some history here: http://www.jct.gov/x-108-07.pdf ). Another example: some funds close and forcibly redeem all your shares. Oops!

Share donation does require a little extra paperwork, and yes, there are some Fidelity fees, but for those small, fixed costs you receive a great deal of future flexibility (antifragility, if you will). I think it's a no-brainer to always donate most-appreciated shares: it's an almost-free option.

edited to add: above, I assumed your annual donations are large enough that the $100 fee is not a huge percent. If you're giving a small amount, say, $500 year (i.e. the fee is 20% of your giving), then the fee & paperwork is probably overkill, and your long-term benefit is small (after 20 years of giving, you've raised your basis by at most $10k). The breakpoint depends on your personal preferences; my line would be that somewhere in the single-digit thousands per year the DAF becomes very valuable.
Thank you. Your post got to the root of my question. My contributions should be enough to make the small fee worthwhile.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Fri Apr 12, 2019 10:51 am
by dm200
JCW500 wrote: Fri Apr 12, 2019 9:59 am
senex wrote: Thu Apr 11, 2019 9:58 am
JCW500 wrote: Thu Apr 11, 2019 8:54 am I think my hangup is that I'm not sure that I will ever need to sell these shares. Since they are the lowest basis shares I own, and they are a small part of my portfolio, unless I deplete my portfolio completely I will not touch them. My heirs will not pay cap gains regardless of the basis. In that case, donating the shares will not yield any tax benefit. I guess I can do a little rebalancing this way, but is that worth the 100 dollars per year with Fidelity's DAF (and I don't want to deal with the inconvenience of donating shares direct to charities)
Yes, if the future happens exactly as you foresee, you'll get no net tax benefit. But if anything goes contrary to your plan/expectations, the share donation could provide a large net benefit.
One example: step-up basis at death is not guaranteed. Several times in the past 50 years there has been no step-up basis for inherited assets. (some history here: http://www.jct.gov/x-108-07.pdf ). Another example: some funds close and forcibly redeem all your shares. Oops!
Share donation does require a little extra paperwork, and yes, there are some Fidelity fees, but for those small, fixed costs you receive a great deal of future flexibility (antifragility, if you will). I think it's a no-brainer to always donate most-appreciated shares: it's an almost-free option.
edited to add: above, I assumed your annual donations are large enough that the $100 fee is not a huge percent. If you're giving a small amount, say, $500 year (i.e. the fee is 20% of your giving), then the fee & paperwork is probably overkill, and your long-term benefit is small (after 20 years of giving, you've raised your basis by at most $10k). The breakpoint depends on your personal preferences; my line would be that somewhere in the single-digit thousands per year the DAF becomes very valuable.
Thank you. Your post got to the root of my question. My contributions should be enough to make the small fee worthwhile.
Use of a DAF has many and varies aspects and benefits.

While such DAFs do not fit our needs/desires, there are many DAFs organized and run by various entities, such as a religious entity. That might be a fit for some folks.

Here is one example: https://www.shalomdc.org/donor-advised-funds/

and another https://www.arlingtondiocese.org/the-foundation/

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Fri Apr 12, 2019 2:41 pm
by miket29
JCW500 wrote: Wed Apr 10, 2019 4:36 pm If I pass shares on to my heirs, the cost basis is stepped up so they avoid capital gains. So, is it worth it to start donating my oldest shares (with the lowest cost basis), since these are also the shares that are most likely to be passed on (and thus face no taxes)?
As you say, all the shares you pass on to your heirs are received at a stepped up basis. Therefore it doesn't matter to them whether they receive shares you bought 30 years ago or the day before your demise. On the other hand donating the most appreciated shares gives you the most bang for your buck in charitable donations.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Fri Apr 12, 2019 2:54 pm
by welsie
JCW500 wrote: Thu Apr 11, 2019 8:54 am
grabiner wrote: Wed Apr 10, 2019 9:28 pm If you are going to donate to charity anyway, donating appreciated shares makes sense. The shares you donate will be the lowest-basis shares, and thus shares which will have a large capital gain when you eventually sell them.

If you donate shares to charity, and then buy new shares with the cash you would have otherwise donated, you have just turned low-basis shares into high-basis shares. This reduces the capital gain if you need to sell those shares soon, and allows you to harvest a capital loss if the market declines after you buy the shares.

Another benefit of donating to charity is that it reduces the cost of changing your portfolio. If you have Fund A with a large capital gain, and would rather hold Fund B, or would rather hold your Fund A in an IRA, charitable donations let you get rid of the low-basis shares of Fund A.
I think my hangup is that I'm not sure that I will ever need to sell these shares. Since they are the lowest basis shares I own, and they are a small part of my portfolio, unless I deplete my portfolio completely I will not touch them. My heirs will not pay cap gains regardless of the basis. In that case, donating the shares will not yield any tax benefit. I guess I can do a little rebalancing this way, but is that worth the 100 dollars per year with Fidelity's DAF (and I don't want to deal with the inconvenience of donating shares direct to charities)
Well keep in mind, from a tax perspective the DAF is easier to deal with if you donate to many charities because it is one deduction you need to keep track up. It also allows you to be opportunistic about lumping donations.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Fri Apr 12, 2019 3:02 pm
by Atilla
If you are going to give regularly anyway - I see it as getting the full tax write off of making the donation with (cap gains appreciated) money I didn't have to earn by working. Bonus 1.

AND you re-invest the same amount you would have given back into the same investment you gave away and raise your cost basis for lower cap gains taxes in the future. Bonus 2. :sharebeer

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Sat Apr 13, 2019 2:24 pm
by dm200
Well keep in mind, from a tax perspective the DAF is easier to deal with if you donate to many charities because it is one deduction you need to keep track up. It also allows you to be opportunistic about lumping donations[/quote]

Yes - one (of many) reason I love our Fidelity DAF!! :happy

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Sat Apr 13, 2019 2:30 pm
by HEDGEFUNDIE
If one were to open a new DAF, would it would make sense to delay funding it until later in the year, under the assumption that your shares will be higher by then and granting you a larger tax deduction?

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Sat Apr 13, 2019 3:15 pm
by letsgobobby
Deleted

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Sat Apr 13, 2019 3:50 pm
by Trader Joe
JCW500 wrote: Wed Apr 10, 2019 4:36 pm I am in my early 40s and have a fair amount of appreciated shares in my Vanguard account. I was planning on opening a DAF so I could facilitate giving shares to reset the cost basis on those shares (I use Specific Identification for cost basis). But, then, I was thinking, retirement is a long way off, and I hopefully won't have to liquidate my entire account before death. If I pass shares on to my heirs, the cost basis is stepped up so they avoid capital gains. So, is it worth it to start donating my oldest shares (with the lowest cost basis), since these are also the shares that are most likely to be passed on (and thus face no taxes)? Or, is there an advantage to start donating shares now anyway, even though I don't know when or if I will ultimately be cashing in those shares?
I would wait. Life happens. You have plenty of time to take action.

Re: Is it worth it to donate appreciated shares when retirement is far off?

Posted: Sun Apr 14, 2019 3:18 am
by inbox788
HEDGEFUNDIE wrote: Sat Apr 13, 2019 2:30 pm If one were to open a new DAF, would it would make sense to delay funding it until later in the year, under the assumption that your shares will be higher by then and granting you a larger tax deduction?
If you're talking about multiple years, then it generally helps average up. Very few negative 5 year periods. However, in any single given year, there's a chance, quite a significant chance IMO that it's lower later in the year than now. Some of the most volatile periods have occurred in and around October. So if you're granting smaller amounts every October, I wouldn't worry too much, but if it's just this year now vs. later, you may want to hedge your bets, say half now and half later, so you guarantee it's a half good and half bad decision and not an extreme either way.