What is a Donor-Advised Fund?

A simple, flexible and tax-efficient way to give to your favorite charities.

​A donor-advised fund is like a charitable investment account, for the sole purpose of supporting charitable organizations you care about. When you contribute cash, securities or other assets to a donor-advised fund at a public charity, like Fidelity Charitable, you are generally eligible to take an immediate tax deduction. Then those funds can be invested for tax-free growth and you can recommend grants to virtually any IRS-qualified public charity.

When you give, you want your charitable donations to be as effective as possible. According to Morningstar, donor-advised funds are the fastest-growing charitable giving vehicle in the U.S. because they are one of the easiest and most tax-advantageous ways to give to charity.

How a donor-advised fund works

  1. Make a tax-deductible donation. Contribute cash, stocks or non-publicly traded assets such as real estate, private business interests and private company stock and get your tax receipt. You’ll also be eligible for an immediate tax deduction.
  2. Grow your contribution, tax-free. While you’re deciding which charities to support, your donation can potentially grow based on your investment preferences, making available even more money for charities.
  3. Support charities you love, now or over time. You can support virtually any IRS-qualified public charity with money in the donor-advised fund.

Tax benefits
As soon as you make a contribution, you are eligible for an immediate tax deduction, just as you would by donating to another public charity. Your tax deduction may depend on the type of donation. This is especially powerful for those clients who already itemize deductions and expect to have a higher-than-normal tax year. For instance, if you expect your income to bump you into the next tax bracket, by contributing to your donor-advised fund that year, you could significantly reduce your taxable income.

Other advantages of a donor-advised fund
Continue to enjoy benefits beyond the basics.

  • Simplified recordkeeping – it’s much easier to keep track of one tax receipt (which is your contribution receipt for funding)
  • Support your legacy planning
  • Authorize your financial advisor to help you take full advantage of your donor-advised fund
  • Name your donor-advised account, such as The Diven Family Fund

Where to go to set-up your donor-advised fund? First ask your financial advisor as their institution may offer them. If not, check into Fidelity Charitable, Schwab Charitable, or Vanguard Charitable. Not only are these three the largest ones, but they also have user-friendly web solutions that make donating and granting easy!

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