Is there a minimum when donor advised funds are worth it?

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Jonezez
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Is there a minimum when donor advised funds are worth it?

Post by Jonezez »

Hi:

we donate probably < $1000/year to charities. I've usually just donated with a credit card. Is there a ballpark minimum amount of donations where the expense of maintaining a DAF becomes worth it?

Separate question: Has anyone used charityvest to establish an account for a DAF?

https://www.charityvest.org/

Seems to have the best pricing but wondering if I should go with one of the big 3 (Vanguard, Schwab, Fidelity) for safety (i.e. too big to fail).

With a smaller non-profit like charityvest, there seems to be a potential risk if they go under, then you lose your funds? I probably won't keep much in this fund anyway so probably a moot point but always appreciate boglehead's insights.
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CAsage
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Re: Is there a minimum when donor advised funds are worth it?

Post by CAsage »

Using a DAF is really only worthwhile if you plan to donate a big chunk on an infrequent (i.e. more than yearly) basis and then dole out grants for a fraction of that annually. If you are basically donating as you go, there's no real point. Some people like a DAF because you can make anonymous donations. The bigger question is where do your charitable tax donations fall within your standard deduction? If you are not benefitting from your charitable donation (taxwise, not emotionally) then bunching a DAF every few years makes sense.
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Re: Is there a minimum when donor advised funds are worth it?

Post by jebmke »

CAsage wrote: Fri Mar 24, 2023 2:13 pm Using a DAF is really only worthwhile if you plan to donate a big chunk on an infrequent (i.e. more than yearly) basis and then dole out grants for a fraction of that annually.
That is a major benefit but there are other good reasons for using a DAF. One is to fund multiple charities with a single donation of securities. This is mainly for administrative ease to avoid having to donate slices of shares at a time. Two, and important to some, DAFs are a good vehicle for making anonymous donations.
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123
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Re: Is there a minimum when donor advised funds are worth it?

Post by 123 »

Perhaps the biggest advantage of DAFs is the ability to donate appreciated securities. You don't pay the capital gains tax on the securities you transfer to the DAF account and the full current value of the securities counts as the amount donated for tax purposes.
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Re: Is there a minimum when donor advised funds are worth it?

Post by jebmke »

123 wrote: Fri Mar 24, 2023 2:45 pm Perhaps the biggest advantage of DAFs is the ability to donate appreciated securities. You don't pay the capital gains tax on the securities you transfer to the DAF account and the full current value of the securities counts as the amount donated for tax purposes.
You can also donate appreciated securities directly to a charity. The value deducted depends on whether the gain was long term or short term and there is a maximum amount that can be deducted based on income. Running it through a DAF can be administratively much easier, particularly for smaller charities that aren't set up to handle non-cash asset donations.
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HomeStretch
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Re: Is there a minimum when donor advised funds are worth it?

Post by HomeStretch »

Edit - for a $1k annual donation, likely not worth using a DAF unless you want to give anonymously. Some DAFs have minimum donation amounts (I think Fidelity is $25). But utilizing a DAF might be part of your estate planning.

In addition to the tax and anonymous giving mentioned by others, above, my/spouse’s plan is to leave any charitable bequests to be directed through our DAF rather than name any charities directly in our Wills.
Last edited by HomeStretch on Fri Mar 24, 2023 3:12 pm, edited 2 times in total.
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Stinky
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Re: Is there a minimum when donor advised funds are worth it?

Post by Stinky »

At a $1,000 annual donation “spend”, I wouldn’t bother with a DAF.
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Jonezez
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Re: Is there a minimum when donor advised funds are worth it?

Post by Jonezez »

jebmke wrote: Fri Mar 24, 2023 2:50 pm
123 wrote: Fri Mar 24, 2023 2:45 pm Perhaps the biggest advantage of DAFs is the ability to donate appreciated securities. You don't pay the capital gains tax on the securities you transfer to the DAF account and the full current value of the securities counts as the amount donated for tax purposes.
You can also donate appreciated securities directly to a charity. The value deducted depends on whether the gain was long term or short term and there is a maximum amount that can be deducted based on income. Running it through a DAF can be administratively much easier, particularly for smaller charities that aren't set up to handle non-cash asset donations.
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Jonezez
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Re: Is there a minimum when donor advised funds are worth it?

Post by Jonezez »

Stinky wrote: Fri Mar 24, 2023 2:58 pm At a $1,000 annual donation “spend”, I wouldn’t bother with a DAF.
Is opening and/or administering one very burdensome? Honest question.

I do see the point that the "financial" benefit is minimal with such a small donation at < $1000. What is a reasonable amount where the benefits outweight the hassle assuming high marginal tax bracket in a high tax state?
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Re: Is there a minimum when donor advised funds are worth it?

Post by TomatoTomahto »

I get the sense that you’re much younger than 70.5, but just in case you’re approaching that age and have tax deferred accounts, it is much better to donate using Qualified Charitable Distributions (QCD). You can donate $100k annually, have the QCD amount not affect your income that year, and continue taking the Standard Deduction.

Rather than starting a DAF, I waited for 70.5.

I wouldn’t use a DAF for miscellaneous charitable donations unless the amounts were sufficient to make bundling itemized deductions worth it. Just my 2 cents.

ETA: I think the QCD amount will be inflation adjusted as of 2026, but not sure.
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Re: Is there a minimum when donor advised funds are worth it?

Post by afan »

As others have noted, the DAF is most helpful when donating appreciated assets. If you are giving cash, there are no tax advantages and all charities can take those gifts. Even if one were making annual gifts of far more than $1,000, if they were cash there would not be much point in doing a DAF.
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Stinky
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Re: Is there a minimum when donor advised funds are worth it?

Post by Stinky »

Jonezez wrote: Fri Mar 24, 2023 3:11 pm
Stinky wrote: Fri Mar 24, 2023 2:58 pm At a $1,000 annual donation “spend”, I wouldn’t bother with a DAF.
Is opening and/or administering one very burdensome? Honest question.

I do see the point that the "financial" benefit is minimal with such a small donation at < $1000. What is a reasonable amount where the benefits outweight the hassle assuming high marginal tax bracket in a high tax state?
I have a Fidelity DAF.

No particular hassle in opening and administering the account. But Fidelity charges a minimum annual fee of $100, which would be pretty burdensome for your fund. (Their fee is the greater of 0.60% of assets and $100).
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Re: Is there a minimum when donor advised funds are worth it?

Post by jebmke »

DAFs are also a good place do dump remnants in a portfolio or other misfits that have unrealized gains. I had a legacy stock holding get acquired so I dumped it in the DAF before having the gain forced on me.
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Artful Dodger
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Re: Is there a minimum when donor advised funds are worth it?

Post by Artful Dodger »

I originally set up a DAF with Fidelity when I had some appreciated assets and then later added a large contribution the year prior to our current tax law that raised the standard deduction. Prior to that most of our charitable giving was tax deductible because our mortgage interest and state and local tax exceeded the standard deduction at that time. So, I guess I'm saying tax considerations mostly drove our decision to set up the DAF. We still make the smaller $50 - $250 contributions regularly by credit card and are depleting the DAF with the larger ($500+) donations. I expect we'll run it out then move on to QCDs.
CloseEnough
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Re: Is there a minimum when donor advised funds are worth it?

Post by CloseEnough »

If you don't itemize, a DAF can be useful if you have an anomalous high income year and are able to fund it with appreciated stocks with high tax gain, if the DAF contribution, together with other itemized deductions, allows you to go significantly above the standard deduction. Depending on your specific circumstances and tax position, it can be a very efficient way to make charitable donations.
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Re: Is there a minimum when donor advised funds are worth it?

Post by jetstream »

I am interested in donating highly appreciated shares to charity. I understand there is a deduction limit (30% of adjusted gross income) and carry forward rules. It looks like you can only carry forward 5 years and always have to deduct contributions made in the current year before applying carry forward deductions. If you donate too much or too fast, you may not get the deduction.

So you should estimate your AGI at the end of the year (that may be difficult) and make a donation around 30% of that before the end of the year. Do I have that right?

Are there any resources for planning that out? Is there a trustworthy spreadsheet or calculator for this?
llin
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Re: Is there a minimum when donor advised funds are worth it?

Post by llin »

I'm also attempting to navigate the DAF funding landscape and not found anything beyond simple tax savings calculators. Cash contributions are deductible at 60% of AGI but as you noted shares and other non-cash assets only receive a 30% deduction.

With a 5 year carry-forward I'm comfortable taking 30% of my last tax return's AGI and multiplying by 3. Occasional refills to maximize the deduction seems to make the most sense.
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Re: Is there a minimum when donor advised funds are worth it?

Post by yankees60 »

Stinky wrote: Fri Mar 24, 2023 2:58 pm At a $1,000 annual donation “spend”, I wouldn’t bother with a DAF.
I concur with this.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Is there a minimum when donor advised funds are worth it?

Post by yankees60 »

Jonezez wrote: Fri Mar 24, 2023 3:11 pm
Stinky wrote: Fri Mar 24, 2023 2:58 pm At a $1,000 annual donation “spend”, I wouldn’t bother with a DAF.
Is opening and/or administering one very burdensome? Honest question.

I do see the point that the "financial" benefit is minimal with such a small donation at < $1000. What is a reasonable amount where the benefits outweight the hassle assuming high marginal tax bracket in a high tax state?
Not answering Any of your questions directly but adding this information. When I opened my Vanguard donor advised fund in 2012I had to put in a minimum of $25,000 into it to open it. At the time I was donating somewhere between 15,000 and $20,000 Every other year As part of a plan To take the standard deduction 1 year and then itemize deductions the other year.

It is also excellent for being able to get the tax deduction For the year you make the donation but being able to decide in the future who actually does get the donation.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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