Need advice with my first DAF

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Topic Author
itsjustme
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Need advice with my first DAF

Post by itsjustme »

I think I'd like to start using a Donor-Advised Fund (DAF) but need some help. My reason is primarily because I am one of the people whose itemized deductions end up right around the current $24k standard deduction so I'm not really getting any tax benefit from my donations. I donate approximately $15k or so each year so I am thinking of funding a DAF with around $30-$45k from savings or maybe from my taxable account (if that's even possible) in 2021 to get the larger deduction this year, making all donations from the DAF over the next couple years, and then redirecting my normal monthly donation amount back into whichever account I funded the DAF from over the same time. If the standard deduction remains the same when the fund is nearly depleted then I will repeat the process.

With all of that said, other than reading here and other articles, I'm not familiar with the DAF details and it seems like they could have a few pitfalls to watch out for, maybe. Could you all give me some advice and point out information (even if it might seem obvious to you) that I might need to think about? Here are some specific questions:

1) Does the plan I outlined in the first paragraph make sense?
2) With the amounts I mentioned, is it worth it?
3) Which broker should I use? All of my investments are with Vanguard, however Vanguard's DAF requires much higher minimums than Fidelity's so it seems like Fidelity would be less "risky" for my DAF. Thoughts?
4) Is there any "best" strategy for making contributions and distributions? Annually, monthly, etc.
5) What is the best investment strategy in a DAF? I assume stay pretty conservative? What funds do you all use?

Thanks for the help!
Hoosier CPA
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Re: Need advice with my first DAF

Post by Hoosier CPA »

We are kind of in the same boat. Our non-work accounts are all with Vanguard. We picked Fidelity for the DAF because of the lower minimums. It works great.

1. Your plan makes sense to me.
2. Yes, it's worth it for the tax savings. I think you'll also find it's convenient. Plus the record-keeping is nice, especially if you are giving towards multiple organizations, churches - all your giving records are now in one spot. If you are transferring assets from a taxable account, it's a good way to eliminate taxable gains.
3. I like the account with Fidelity
4. Since the tax law change, we are alternating years between taking the standard deduction and itemizing. Towards the end of the itemizing year, I move to the DAF from my taxable account the amount I wish to give in the upcoming "standard deduction" year.

My giving is generally based on a % of my pay, and I give when I get a paycheck. Instead of writing a check to the organization, I send the funds from the DAF, and then put that same amount back into my taxable account and "replenish" it that way. I initially thought that during the itemizing years, I'd write checks to the organization like I did previously, but like the convenience, so during the itemizing year, I send my funds to the DAF each paycheck, and then distribute the funds out of that. So nearly all my giving flows through the DAF all years.

5. For investment strategy - I keep the funds in bonds since I'd prefer not to have much fluctuations in the DAF balance. Since the every-other year large funding is from my taxable account, I consider the DAF part of my asset allocation. I might start using the money market fund to keep it even simpler. We're not talking big dollars - at most I have $15K or so in there, after I make the large contribution to cover the upcoming year. And that is dwindled down over the course of a year, and then in the following year, the balance is very small, as it's basically ins and outs to cover the monthly giving.

Good luck. I've found I really like working with Fidelity. I think it's simple to manage - my explanation probably sounds more complicated than it actually is.

I don't know what your giving philosophy is, but I've found we're more generous also with the funds readily available in the account too. Mental accounting perhaps but for us, giving is one of the most important things we do with our money that we have and this makes it easier.
aristotelian
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Re: Need advice with my first DAF

Post by aristotelian »

Your strategy makes sense and would be a perfect use case for DAF. We use ours the same way. Ours is invested conservatively since we are using it basically as a pass thru with a short time frame. We use Schwab which is where we have our largest taxable account so it's all integrated seamlessly.
ktroxie
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Re: Need advice with my first DAF

Post by ktroxie »

You should strongly consider donating appreciated securities instead of cash.

https://www.fidelity.com/viewpoints/per ... strategies
https://www.schwabcharitable.org/non-ca ... securities


This is a win-win because the DAF/charity still gets the same amount of money, but you get rid of capital gains or investments that you don't want to hold.
mrb09
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Re: Need advice with my first DAF

Post by mrb09 »

This is also what I do. All my funds are at Fidelity, so my DAF is there as well. FYI, if you transfer in kind with any funds you have with long term capital gains, you can take the deduction without paying the LTCG. I know with Fidelity, you then “advise” the DAF to sell the fund when you need them for donations, and being a charity it doesn’t pay the LTCG.
Hockey10
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Re: Need advice with my first DAF

Post by Hockey10 »

Fidelity has a very good DAF. I have been happy with it in the 5 years I have had my account there.

Be aware of the deductibility limits when you make a contribution. For non-cash assets, this is limited to 30% of AGI. For cash donations, it is 60% of AGI.

My only problem with the DAF is that some charitable organizations either don't know about them, or are not set up to process / acknowledge DAF contributions correctly. For example, I was getting ready to make a donation earlier this year in an on-line charity event, but they only accepted credit cards. I did make a donation through the DAF, but from what I could tell, that money was never credited as a donation for that specific event.

I also receive several letters each year from organizations thanking me for my "tax deductible" contribution. This is incorrect, as the deductible event happens when I donate appreciated stock to Fidelity Charitable, not when Fidelity Charitable sends $ to the charity.
Mike Scott
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Re: Need advice with my first DAF

Post by Mike Scott »

I think the main points have already been made about the DAF. If you go this route, bunch any other deductible expenses into that same tax year if you can. Also, you can bunch your giving/deductions directly if you don't want to set up the DAF. The main advantage of the DAF is simplifying the record keeping and stretching out the giving. I don't think it does much that you cannot do with direct giving (including credit cards etc) but you can give through a DAF and directly.
MrJedi
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Re: Need advice with my first DAF

Post by MrJedi »

Another vote for Fidelity Charitable. Very pleased with it. I hold my taxable account at Fidelity, so that's a big plus since the integration is very tight. The DAF interface shows all my tax lots and I can pick the exact ones to donate all online. As soon as I submit, I can see it reflected in my taxable account and the liquidated money settles into the DAF a few days later.

I found that even very small charities were found in the Fidelity Charitable database. If not there, you can request an addition. They also have an interactive demo you can use to see what the interface is like and search through their database before even signing up; that gave me a lot of confidence before getting started.

Charities that are not setup to receive payments electronically get a check in the mail. This works great too since small organizations typically don't have the experience or administrative manpower to deal with donated shares. This shifts the administrative work to the DAF and then the charity gets a check which is usually much simpler for them to process.
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langelgjm
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Re: Need advice with my first DAF

Post by langelgjm »

1. Bunching donations to a DAF and itemizing every other/third/etc year is a well-known strategy - yes, it makes sense. Though keep an eye on tax law, as things change. We set up a DAF this year and prefunded with several years of planned donations to itemize this year (which is also the last year we'll have any state income tax to count for itemizing).

2. Worth it? Up to you to decide. Itemizing will only save us a few thousand dollars, but the DAF also allowed us to gift low-basis shares and avoid capital gains tax on them, that was worth another few thousand. It probably caused us to donate more, knowing that the taxes didn't have to come out.

3. My shares were at Vanguard, but I didn't like Vanguard minimum donation amount. I initially set up the DAF with Vanguard, though, because I didn't really trust them to transfer out the correct shares with SpecID to Fidelity directly. If you do it with Vanguard, you can pick the shares yourself. Immediately after doing it, I then recommended a grant of the full amount to a Fidelity DAF I set up, so now all the funds are at Fidelity. It took a few days but everything worked fine.

4. Contributions: we funded all at once to meet Vanguard's minimum. Distributions: for recurring donations, we have monthly checks sent. Fidelity lets you track the check and see if/when it's been deposited, which is nice. More frequent than monthly might create too much paperwork for your recipient.

5. Investment strategy: it is its own bucket (since the funds are no longer ours). Adjust AA to match time horizon. In our case we plan to exhaust it in the next few years, so it's conservative.

Echoing other posters - yes, some orgs don't know what a DAF is, or they aren't listed on Fidelity's website. I had to get the non-profit status docs from our church (which was an old IRS letter covering all churches in the same denomination without naming them specifically) plus another letter showing that this particular church was part of the denomination and submit to Fidelity. It was approved within a few weeks.

And yes, don't assume that the tax docs your org sends you are correct - you need to keep track of what is deductible.
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Stinky
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Re: Need advice with my first DAF

Post by Stinky »

Yes, your plan makes sense.

Even though all of my other assets are at Vanguard, I use Fidelity for my DAF. I much prefer the lower minimums at Fidelity, and both the website and mobile app are easy to use.

My thought on investing philosophy within the DAF is the same as if I hadn’t contributed to the DAF. If you’re contributing appreciated sexurities, I’d suggest investing in equities in your DAF.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
itsjustme
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Re: Need advice with my first DAF

Post by itsjustme »

Thank you all for the replies, this has helped tremendously and made me more confident in this strategy. Could someone help explain the whole process of a Vanguard taxable account with VTSAX -> Fidelity DAF -> charitable organization.

I understand that you donate shares from the Vanguard taxable VTSAX fund to Fidelity DAF and I assume the two companies would sort out all of the process to make that happen. However, what is then in my Fidelity DAF, shares of VTSAX or cash? If shares, I assume Fidelity will charge their $75 transaction fee and other expenses to hold the Vanguard fund? If that is true, is there a better way to do it? I am sure there are other parts of the process I am missing, could someone walk me through how it all works?

Thanks!
ktroxie
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Re: Need advice with my first DAF

Post by ktroxie »

The DAF has a selection of funds you can pick from: https://www.fidelitycharitable.org/givi ... mance.html

You pick an allocation. I've picked 60% Total US ( ER 0.015%) and 40% US Bond (ER 0.025%). When you transfer your VTSAX securities, fido will "sell it" and you will see the amount in the allocation you picked.

It might help you to go through the Fido Demo site and the workflow? https://www.demo-charitablegift.com/cgf ... fdo#/demo/

I assume Schwab and Vanguard DAF is similar, but I only have experience with Fido.
livesoft
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Re: Need advice with my first DAF

Post by livesoft »

itsjustme wrote: Fri Sep 17, 2021 7:50 am1) Does the plan I outlined in the first paragraph make sense? Yes, we do the same.

2) With the amounts I mentioned, is it worth it? Of course. Tax savings are tax savings. When we lump into the DAF the bigger tax deductions allows us to make a bigger Roth conversion while staying in a low tax bracket.

3) Which broker should I use? All of my investments are with Vanguard, however Vanguard's DAF requires much higher minimums than Fidelity's so it seems like Fidelity would be less "risky" for my DAF. Thoughts? Fidelity DAF for sure.

4) Is there any "best" strategy for making contributions and distributions? Annually, monthly, etc. While there is no best strategy, we have done the following:
Donate appreciated shares with LARGE capital gains that have been held long term. Indeed, we have shares bought in spring 2009 after the market crash that have those large gains.

In order to make this donation very easy, we have opened a Fidelity taxable account as well and transferred ALL those shares in-kind to it where they just sit until donated. That account has never had a "buy" nor a "sell" ever and just exists in order to donate shares at the click of a button with zero hassle to our Fidelity DAF. The dividends paid by those shares while waiting to get donated get automatically sent to our checking account.

As far as the timing of the donation, I don't think it matters, but we would not make a share donation to our DAF on a Really Bad Day. Instead we would generally make a donation after a run-up in the stock market.

As noted, we bunch a big donation every other year. Since those shares generally increase in value in our taxable account, we get the benefit of making larger donations as time goes on. Otherwise the Fidelity taxable account is considered "dead money" in that we will never use it for own expenses.


5) What is the best investment strategy in a DAF? I assume stay pretty conservative? What funds do you all use?
We have a 50/50 asset allocation in our DAF of a total US stock market index fund and total US bond market index fund. The DAF is a conduit to charities and we do not expect
to have any gains or losses in it since the money in is not meant to sit around and does not belong to us anyways. No reason to stay conservative and no reason to go aggressive. And no reason to let the money linger in the DAF either.


Thanks for the help!
Last edited by livesoft on Sat Sep 18, 2021 7:13 am, edited 1 time in total.
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Stinky
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Re: Need advice with my first DAF

Post by Stinky »

itsjustme wrote: Sat Sep 18, 2021 6:37 am Thank you all for the replies, this has helped tremendously and made me more confident in this strategy. Could someone help explain the whole process of a Vanguard taxable account with VTSAX -> Fidelity DAF -> charitable organization.

I understand that you donate shares from the Vanguard taxable VTSAX fund to Fidelity DAF and I assume the two companies would sort out all of the process to make that happen. However, what is then in my Fidelity DAF, shares of VTSAX or cash? If shares, I assume Fidelity will charge their $75 transaction fee and other expenses to hold the Vanguard fund? If that is true, is there a better way to do it? I am sure there are other parts of the process I am missing, could someone walk me through how it all works?

Thanks!
I agree with ktroxie's response above.

Fidelity's DAF will liquidate any Vanguard VTSAX that you donate to the DAF. You can then choose which funds to invest in within the DAF.

Since all of our DAF contributions were made with equities, we've chosen to have 100% of our DAF invested in the Fidelity Total Market Index. It's certainly worked out fine in the 7 years that we've had our Fidelity DAF.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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Cheez-It Guy
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Re: Need advice with my first DAF

Post by Cheez-It Guy »

I'm in the minority in this thread, but I have my DAF at Vanguard after starting at Fidelity. Not because I had any issues with Fidelity, but because I wanted everything at the same house (even though Vanguard Charitable is legally separated). When you discuss minimums, there are three to consider -- the minimum to open the account ($25,000), the minimum additional contribution ($5,000), and the minimum grant amount ($500). It took awhile for me to build up $25,000 from annual grants when I was just starting out, but when I had, I rolled it over. The minimum additional contribution and the minimum grant amounts are not a problem. Vanguard Charitable encourages impactful giving, and their minimums reflect this. $50 isn't really going to move the needle in most cases. There's an administrative cost for the recipient organization in processing and recognizing donations, and $50 just doesn't go all that far.

If you use Vanguard Charitable, it's linked to your main Vanguard account, and making contributions of appreciated taxable assets is very easy including selection of specific lots. The funds are gone from your taxable account and appear in your DAF in a single overnight cycle for mutual funds. The annual fees for AUM are the same for Vanguard, Fidelity, and Schwab (if you allow funds to accumulate). You can link multiple family accounts to one Vanguard DAF if this is an interest. I value the easy of having it all connected and not having to bother with how well the organizations communicate with one another and any possible associated delays.

Another benefit of a DAF is that it allows you to get rid of any taxable investments that you no longer want or which no longer fit your investment strategy without incurring capital gains tax for divesting. I used this to exit funds with international holdings after deciding I preferred domestic for multiple reasons (and no, I'm not actually attempting to trigger discussion on that whole can of worms).
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Re: Need advice with my first DAF

Post by placeholder »

As I already had a brokerage at fidelity I moved appreciate etf shares using the normal online transfer process to that and then into the donor advised fund I had set up.
Retired Bill
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Re: Need advice with my first DAF

Post by Retired Bill »

The main advantages of donor advised funds is the potential tax savings from avoiding the capital gains tax on highly appreciated securities donated and the ability to claim a charitable deduction in the year donated to the donor advised fund at the fair market value at date of gift. Some secondary advantages are that you have a degree of control as when to make the gifts to charity (either make them right away or let the fund grow and gift more sometime in the future). DAF are less expensive to establish and administer compared to say a private foundation. Once the DAF receives the appreciated securities, the securities are often sold and reinvested in a more diversified portfolio since no tax on the gain to the DAF although there are some requirements.
Grogs
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Re: Need advice with my first DAF

Post by Grogs »

Your plan with the DAF sounds good. I think it's a wonderful tool. One of the biggest Pros of a DAF to me is that it gives you a pool of money that can ONLY be used for charitable giving. That eliminates the feeling that I need to check my bank account before every donation. I first funded my DAF in 2019 and during COVID I was able to give freely even though my job didn't always feel secure.
Stinky wrote: Sat Sep 18, 2021 7:07 am
itsjustme wrote: Sat Sep 18, 2021 6:37 am Thank you all for the replies, this has helped tremendously and made me more confident in this strategy. Could someone help explain the whole process of a Vanguard taxable account with VTSAX -> Fidelity DAF -> charitable organization.

I understand that you donate shares from the Vanguard taxable VTSAX fund to Fidelity DAF and I assume the two companies would sort out all of the process to make that happen. However, what is then in my Fidelity DAF, shares of VTSAX or cash? If shares, I assume Fidelity will charge their $75 transaction fee and other expenses to hold the Vanguard fund? If that is true, is there a better way to do it? I am sure there are other parts of the process I am missing, could someone walk me through how it all works?

Thanks!
I agree with ktroxie's response above.

Fidelity's DAF will liquidate any Vanguard VTSAX that you donate to the DAF. You can then choose which funds to invest in within the DAF.

Since all of our DAF contributions were made with equities, we've chosen to have 100% of our DAF invested in the Fidelity Total Market Index. It's certainly worked out fine in the 7 years that we've had our Fidelity DAF.
Just a note of caution: Vanguard absolutely refused to transfer VTSAX in kind to a Fidelity DAF when I tried. At least that was my conclusion over the course of a week and 4 phone calls. And every single agent would say something like, "No problem. We'll just liquidate those shares and then we can process the transfer in cash." I had to stop myself from screaming, "Don't you dare!" every time. Luckily, there's an easy work around. Just convert the lot or lots of appreciated VTSAX that you want to donate to VTI and then Vanguard will let the transfer go through. The conversion to VTI is a non-taxable event.
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Wiggums
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Re: Need advice with my first DAF

Post by Wiggums »

We have our DAF at Fidelity and we generally donate shares. No complaints.
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Dude2
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Re: Need advice with my first DAF

Post by Dude2 »

Cheez-It Guy wrote: Sun Sep 19, 2021 7:20 am I'm in the minority in this thread, but I have my DAF at Vanguard after starting at Fidelity. Not because I had any issues with Fidelity, but because I wanted everything at the same house (even though Vanguard Charitable is legally separated). When you discuss minimums, there are three to consider -- the minimum to open the account ($25,000), the minimum additional contribution ($5,000), and the minimum grant amount ($500). It took awhile for me to build up $25,000 from annual grants when I was just starting out, but when I had, I rolled it over. The minimum additional contribution and the minimum grant amounts are not a problem. Vanguard Charitable encourages impactful giving, and their minimums reflect this. $50 isn't really going to move the needle in most cases. There's an administrative cost for the recipient organization in processing and recognizing donations, and $50 just doesn't go all that far.
Good needed clarification. In a way Vanguard protects investors from themselves by requiring a high initial minimum to open the DAF that will hopefully stimulate them to think about it very hard, not go in willy-nilly. Due to the bunching necessary to exceed the standard deduction, 25k makes sense. Then once the person has figured out a strategy, i.e. they do their taxes at least one time after opening the DAF, they can determine what bunching plan makes sense for them going forward. In other words, I don't see any reason to be anti-Vanguard here, but it is rare to find people that lean in that direction.
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GuyInFL
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Re: Need advice with my first DAF

Post by GuyInFL »

MrJedi wrote: Fri Sep 17, 2021 9:25 am I found that even very small charities were found in the Fidelity Charitable database. If not there, you can request an addition. They also have an interactive demo you can use to see what the interface is like and search through their database before even signing up; that gave me a lot of confidence before getting started.
Schwab's fund has low minimums as well. I'd check their database to see if your charities are listed. Of course its easy enough to add them.
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itsjustme
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Re: Need advice with my first DAF

Post by itsjustme »

Grogs wrote: Sun Sep 19, 2021 10:54 pm Just a note of caution: Vanguard absolutely refused to transfer VTSAX in kind to a Fidelity DAF when I tried. At least that was my conclusion over the course of a week and 4 phone calls. And every single agent would say something like, "No problem. We'll just liquidate those shares and then we can process the transfer in cash." I had to stop myself from screaming, "Don't you dare!" every time. Luckily, there's an easy work around. Just convert the lot or lots of appreciated VTSAX that you want to donate to VTI and then Vanguard will let the transfer go through. The conversion to VTI is a non-taxable event.
This is what I'm worried about with the transfer. VTSAX -> VTI -> Fidelity seems like it would be a lot cleaner even if it takes an extra step.
LeeMKE
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Re: Need advice with my first DAF

Post by LeeMKE »

4) Is there any "best" strategy for making contributions and distributions? Annually, monthly, etc.
I will add one tidbit about distributions:
Consider the charity to which you are making the donation. Some are mega charities and will manage your contribution made on an annual basis without problem.
But other charities are smaller, a local church, the local SPCA or animal shelter, etc. And small charities tend to be better stewards of smaller consistent donations. And once they are signed up to receive funds from your DAF, the monthly donation is trivial for you.

Contributions should be made to optimize your tax deduction, as you are already aware.
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Grogs
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Re: Need advice with my first DAF

Post by Grogs »

itsjustme wrote: Mon Sep 20, 2021 3:13 pm
Grogs wrote: Sun Sep 19, 2021 10:54 pm Just a note of caution: Vanguard absolutely refused to transfer VTSAX in kind to a Fidelity DAF when I tried. At least that was my conclusion over the course of a week and 4 phone calls. And every single agent would say something like, "No problem. We'll just liquidate those shares and then we can process the transfer in cash." I had to stop myself from screaming, "Don't you dare!" every time. Luckily, there's an easy work around. Just convert the lot or lots of appreciated VTSAX that you want to donate to VTI and then Vanguard will let the transfer go through. The conversion to VTI is a non-taxable event.
This is what I'm worried about with the transfer. VTSAX -> VTI -> Fidelity seems like it would be a lot cleaner even if it takes an extra step.
I'm not sure I would call it cleaner. My process looked like this:

- Converted 202.306 shares of VTSAX to 98.472 shares of VTI
- I only moved 98 shares of VTI to Fidelity because I don't think they can receive fractional ETF shares. (Maybe that's changed now.)
- VG automatically liquidated the 0.472 shares. It did create about a $40 capital gain I had to pay taxes on.

Overall I wouldn't call it hard, but I think just transferring the VTSAX directly would have been "cleaner" if VG would have let me do it.
DelawareAB
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Re: Need advice with my first DAF

Post by DelawareAB »

Cheez-It Guy wrote: Sun Sep 19, 2021 7:20 am If you use Vanguard Charitable, it's linked to your main Vanguard account, and making contributions of appreciated taxable assets is very easy including selection of specific lots. The funds are gone from your taxable account and appear in your DAF in a single overnight cycle for mutual funds.
Have people had issues transferring specific lots from Vanguard to Fidelity's DAF? That is what I am planning to do.

It would be administratively easier to use Vanguard's DAF, but Vanguard's minimums are a bit steep for me at this phase of life.
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Re: Need advice with my first DAF

Post by MAKsdad »

itsjustme wrote: Fri Sep 17, 2021 7:50 am I think I'd like to start using a Donor-Advised Fund (DAF) but need some help. My reason is primarily because I am one of the people whose itemized deductions end up right around the current $24k standard deduction so I'm not really getting any tax benefit from my donations. I donate approximately $15k or so each year so I am thinking of funding a DAF with around $30-$45k from savings or maybe from my taxable account (if that's even possible) in 2021 to get the larger deduction this year, making all donations from the DAF over the next couple years, and then redirecting my normal monthly donation amount back into whichever account I funded the DAF from over the same time. If the standard deduction remains the same when the fund is nearly depleted then I will repeat the process.

With all of that said, other than reading here and other articles, I'm not familiar with the DAF details and it seems like they could have a few pitfalls to watch out for, maybe. Could you all give me some advice and point out information (even if it might seem obvious to you) that I might need to think about? Here are some specific questions:

1) Does the plan I outlined in the first paragraph make sense? Yes and no. I definitely would not fund my DAF from savings unless you absolutely had to. I would use appreciated shares from taxable only.
2) With the amounts I mentioned, is it worth it? Seems like it
3) Which broker should I use? All of my investments are with Vanguard, however Vanguard's DAF requires much higher minimums than Fidelity's so it seems like Fidelity would be less "risky" for my DAF. Thoughts? Your plan would exceed the Vanguard minimums, so I'm not sure why would wouldn't just use it.
4) Is there any "best" strategy for making contributions and distributions? Annually, monthly, etc. I do monthly and ad hoc
5) What is the best investment strategy in a DAF? I assume stay pretty conservative? What funds do you all use? I use 60/40 equity/bonds, just like my regular accounts.

Thanks for the help!
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itsjustme
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Re: Need advice with my first DAF

Post by itsjustme »

Is donating shares with short term or long term gains better? I would think short term gains would be better so you avoid the higher tax rate on those shares, leaving your long term gains alone, right?
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Cheez-It Guy
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Re: Need advice with my first DAF

Post by Cheez-It Guy »

itsjustme wrote: Sat Sep 25, 2021 2:51 pm Is donating shares with short term or long term gains better? I would think short term gains would be better so you avoid the higher tax rate on those shares, leaving your long term gains alone, right?
Donate the shares with the lowest cost basis (largest gains per share), which for equity funds are typically the oldest shares.
Last edited by Cheez-It Guy on Sat Sep 25, 2021 4:15 pm, edited 1 time in total.
Gill
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Re: Need advice with my first DAF

Post by Gill »

itsjustme wrote: Sat Sep 25, 2021 2:51 pm Is donating shares with short term or long term gains better? I would think short term gains would be better so you avoid the higher tax rate on those shares, leaving your long term gains alone, right?
When donating shares with short term gains you are only allowed to deduct your basis. It would be nice if your plan would work but it won't.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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Re: Need advice with my first DAF

Post by Gill »

Cheez-It Guy wrote: Sat Sep 25, 2021 2:55 pm
itsjustme wrote: Sat Sep 25, 2021 2:51 pm Is donating shares with short term or long term gains better? I would think short term gains would be better so you avoid the higher tax rate on those shares, leaving your long term gains alone, right?
Donate the shares with the highest cost basis, which for equity funds are typically the oldest shares.
Don't you mean the lowest basis?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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itsjustme
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Re: Need advice with my first DAF

Post by itsjustme »

Gill wrote: Sat Sep 25, 2021 3:05 pm
itsjustme wrote: Sat Sep 25, 2021 2:51 pm Is donating shares with short term or long term gains better? I would think short term gains would be better so you avoid the higher tax rate on those shares, leaving your long term gains alone, right?
When donating shares with short term gains you are only allowed to deduct your basis. It would be nice if your plan would work but it won't.
Gill
Ahh, I see that now. Thanks for the help!
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Cheez-It Guy
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Re: Need advice with my first DAF

Post by Cheez-It Guy »

Gill wrote: Sat Sep 25, 2021 3:05 pm
Cheez-It Guy wrote: Sat Sep 25, 2021 2:55 pm
itsjustme wrote: Sat Sep 25, 2021 2:51 pm Is donating shares with short term or long term gains better? I would think short term gains would be better so you avoid the higher tax rate on those shares, leaving your long term gains alone, right?
Donate the shares with the highest cost basis, which for equity funds are typically the oldest shares.
Don't you mean the lowest basis?
Gill
Oops. Yes! Lowest basis = highest gains per share. Oldest is typically still correct. My mistake. Corrected phrasing above.
mrgeeze
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Re: Need advice with my first DAF

Post by mrgeeze »

I read that Fidelity offers 3 funds to select from for investment once the contribution is made in their DAF.

I did not read what Vanguard offers in their DAF. Perhaps I missed it.

Personally I have some highly appreciated stocks that I'd like to contribute to the DAF.
Honestly I'm not sure I want to sell them at this point. I think they may have some good life left in them.
If I could I would only liquidate these shares in the DAF when I wanted to make contributions.

Does Vanguard allow me more flexibility it the investment side of the DAF than Fidelity?
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Re: Need advice with my first DAF

Post by Stinky »

mrgeeze wrote: Sun Jan 09, 2022 8:45 am I read that Fidelity offers 3 funds to select from for investment once the contribution is made in their DAF.

I did not read what Vanguard offers in their DAF. Perhaps I missed it.

Personally I have some highly appreciated stocks that I'd like to contribute to the DAF.
Honestly I'm not sure I want to sell them at this point. I think they may have some good life left in them.
If I could I would only liquidate these shares in the DAF when I wanted to make contributions.

Does Vanguard allow me more flexibility it the investment side of the DAF than Fidelity?
Fidelity has a number of equity and fixed income funds available for monies in its DAF. For example, my funds are in a Total Stock Market index.

When you donate shares to a DAF, they are immediately sold. So if you want to keep your appreciated shares for a while longer, don’t donate them yet.

I believe that Vanguard DAF has similar investment options.
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Re: Need advice with my first DAF

Post by rkhusky »

Vanguard has LifeStrategy-like funds, along with standard equity funds (US,Int’l, World, EM, Pac, Eur), Balanced, Wellington, MM, Short Bond, Bond, Int’l Bond.
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Re: Need advice with my first DAF

Post by shess »

mrgeeze wrote: Sun Jan 09, 2022 8:45 am I read that Fidelity offers 3 funds to select from for investment once the contribution is made in their DAF.

I did not read what Vanguard offers in their DAF. Perhaps I missed it.

Personally I have some highly appreciated stocks that I'd like to contribute to the DAF.
Honestly I'm not sure I want to sell them at this point. I think they may have some good life left in them.
If I could I would only liquidate these shares in the DAF when I wanted to make contributions.

Does Vanguard allow me more flexibility it the investment side of the DAF than Fidelity?
Vanguard has: https://www.vanguardcharitable.org/inve ... nt-options
I'm sure Fidelity has a similar list of a mix of all-in-one funds and specific funds.

I am not aware of a DAF which can continue to hold the assets you donate, in fact that seems pretty contrary to the point of a DAF. You may be able to do that if you have a foundation - just keep in mind that you'd have to have a pretty rock-solid argument for how holding those shares does not personally benefit you.
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Re: Need advice with my first DAF

Post by treecat »

Have people had issues transferring specific lots from Vanguard to Fidelity's DAF? That is what I am planning to do.
Personally I have some highly appreciated stocks that I'd like to contribute to the DAF.
Several months ago, I was able to specify lots of a mutual fund when donating from Vanguard to our Fidelity DAF. I believe the web form is called "Gift assets to...", accessible from the Vanguard page "Forms & applications" (current link: https://personal1.vanguard.com/ngf-next ... bapp/forms). It was a Docusign form, and not very well integrated -- to specify lots I had to use another window to view all lots under Vanguard's cost basis page, and then specify the dates and share numbers manually in the gift form. But it worked.

One quirk is a day or two after I submitted, all the cost basis info disappeared from the main Vanguard site; I called them, and they said to wait a day and it would reappear, and it did. All the information on specified lots for the donation all appear correctly as well. Still, it didn't feel like the most reliable process and next time I'll be sure to save all info beforehand and double check after.
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Re: Need advice with my first DAF

Post by Faith20879 »

Cheez-It Guy wrote: Sun Sep 19, 2021 7:20 am When you discuss minimums, there are three to consider -- the minimum to open the account ($25,000), the minimum additional contribution ($5,000), and the minimum grant amount ($500). It took awhile for me to build up $25,000 from annual grants when I was just starting out, but when I had, I rolled it over.
Hi Cheez-It, love your reasoning. I am also in the process of deciding between Fido and VG. Like you our accounts are all with VG so obviously VG is a more convenient choice. You said you "built up the $25000... " I am assuming you did this outside the DAF? Or does VG allow some grace period to build up within the DAF?

I also learned from whitecoat that there is a minimum balance fee assessed every Feb. How do you get around that? For example someone contributes $30000 in Jan and distributes $25000 right away, won't he have to face the low balance fee?

Thanks for your insight!
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Re: Need advice with my first DAF

Post by Cheez-It Guy »

Faith20879 wrote: Mon Jan 17, 2022 3:54 pm
Cheez-It Guy wrote: Sun Sep 19, 2021 7:20 am When you discuss minimums, there are three to consider -- the minimum to open the account ($25,000), the minimum additional contribution ($5,000), and the minimum grant amount ($500). It took awhile for me to build up $25,000 from annual grants when I was just starting out, but when I had, I rolled it over.
Hi Cheez-It, love your reasoning. I am also in the process of deciding between Fido and VG. Like you our accounts are all with VG so obviously VG is a more convenient choice. You said you "built up the $25000... " I am assuming you did this outside the DAF? Or does VG allow some grace period to build up within the DAF?

I also learned from whitecoat that there is a minimum balance fee assessed every Feb. How do you get around that? For example someone contributes $30000 in Jan and distributes $25000 right away, won't he have to face the low balance fee?

Thanks for your insight!
There is some grace period around timing, as well as some wiggle room around certain minimums (like the minimum additional contribution amount), but it would be best to contact Vanguard Charitable about any specific situation there. An example is that my sister had some stock holdings for which the cost basis information was not known (and could not easily be recovered). She agreed to donate it to my DAF to be done with it and get the tax credit, but the total amount was well below the $5,000 requested amount for additional donations. I discussed with Vanguard Charitable and said I'd be making a contribution of my own soon which would exceed the minimum. There were no issues with receiving her smaller contribution.

As far as what I meant by letting a $25,000 balance build up before rolling it over, this was actually done via annual contributions to a Fidelity Charitable DAF. I was donating more than I was disbursing for several years. When my balance at Fidelity Charitable was over $25,000, then I rolled it over to Vanguard Charitable, and I haven't looked back. Admittedly, $25,000 was a high initial hurdle for me as a young, single, working person.

I have not been impacted by the February below minimum balance fee at Vanguard Charitable, because I have continued to donate more to the DAF than I've disbursed (plus investment growth). Additionally, extended family have begun using the same DAF as a pass-through for tax-efficient giving (it is possible to link many Vanguard logins to a single DAF by filling out a form to add additional interested parties who can create their own Vanguard Charitable logins -- I did this for my parents). Building up the balance or hoarding funds is not my goal, but rather I plan to spend more time researching appropriate charitable causes and organizations in a future early retirement (hopefully not that far off). I want to make the irrevocable financial commitment now, but also want to dedicate the appropriate time to due diligence research which I don't feel I can currently do to the level I would desire.

I would just reiterate that if you plan to contribute assets currently held at Vanguard, you're not going to beat the convenience of linking to Vanguard Charitable. I use Specific ID cost basis, and the interface during donation allows you to select the specific tax lots, all online with no forms, no letters, and no calls. The donated assets move in one overnight cycle as long as you complete the request before market close (4:00 PM Eastern). I made three separate contributions from two logins in the last week of 2021 without issue.

Please let me know if you have further questions.
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Re: Need advice with my first DAF

Post by rkhusky »

Regarding the Vanguard minimum balance, on their page that estimates cost, if you put a number less than $15k for the balance, you get a warning that there may be a $250 fee. So, they may have dropped the minimum to $15k.

As an aside, if they have dropped the min to $15K, a more logical fee would be $90 (er of 0.60% x $15K).

Also, it seems like it would be best to contribute in December. And if you are going to disburse most of the balance, do that in March or later. Although perhaps they won’t charge the annual fee for zero balances?
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Re: Need advice with my first DAF

Post by nolesrule »

Grogs wrote: Sun Sep 19, 2021 10:54 pm
Just a note of caution: Vanguard absolutely refused to transfer VTSAX in kind to a Fidelity DAF when I tried. At least that was my conclusion over the course of a week and 4 phone calls. And every single agent would say something like, "No problem. We'll just liquidate those shares and then we can process the transfer in cash." I had to stop myself from screaming, "Don't you dare!" every time. Luckily, there's an easy work around. Just convert the lot or lots of appreciated VTSAX that you want to donate to VTI and then Vanguard will let the transfer go through. The conversion to VTI is a non-taxable event.
For people seeing this now, I had no problem donating shares of VTSAX in December 2020. I used their online gifting questionnaire to generate the form and send it in electronically. I only needed the transfer information for Fidelity's DAF to put in the form. Shares were transferred within 1-2 business days.
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Re: Need advice with my first DAF

Post by Grogs »

nolesrule wrote: Mon Jan 17, 2022 9:06 pm
Grogs wrote: Sun Sep 19, 2021 10:54 pm
Just a note of caution: Vanguard absolutely refused to transfer VTSAX in kind to a Fidelity DAF when I tried. At least that was my conclusion over the course of a week and 4 phone calls. And every single agent would say something like, "No problem. We'll just liquidate those shares and then we can process the transfer in cash." I had to stop myself from screaming, "Don't you dare!" every time. Luckily, there's an easy work around. Just convert the lot or lots of appreciated VTSAX that you want to donate to VTI and then Vanguard will let the transfer go through. The conversion to VTI is a non-taxable event.
For people seeing this now, I had no problem donating shares of VTSAX in December 2020. I used their online gifting questionnaire to generate the form and send it in electronically. I only needed the transfer information for Fidelity's DAF to put in the form. Shares were transferred within 1-2 business days.
That's great! So you did a "push" from the Vanguard side to the Fidelity DAF "charity" and it worked? Did you have to do anything at the Fidelity side first before you sent it? Any trouble choosing the specific lots to transfer?

I'm planning to make another large donation to my FIDO DAF this year or next and if there's an easier process, that would be great. :beer
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Re: Need advice with my first DAF

Post by Doc7 »

OP, thank you for making this thread. I also plan to use a Fidelity DAF, using my weekly church tithe to buy new ITOT Shares in taxable and send > 1 year old appreciated shares to DAF, thus flushing away capital gains (and also raising my cost basis for future loss harvest opportunities). Unfortunately, I cannot utilize the DAF for non-church giving, because my employer will match any giving to other organizations, but not to or via DAF, so I would rather do 200% of my dollars to organizations by using my company match. This means I really only have around $10k per year to send to DAF, the unmatched funds earmarked for church.

Our itemized deductions for both 2019 and 2020 were $35-38,000.

Is this OK or should we make a concerted effort to "bunch"? It will take me a long time (several years) to bunch up $40k while also continuing current giving.
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Re: Need advice with my first DAF

Post by Stinky »

Doc7 wrote: Tue Jan 18, 2022 6:28 am OP, thank you for making this thread. I also plan to use a Fidelity DAF, using my weekly church tithe to buy new ITOT Shares in taxable and send > 1 year old appreciated shares to DAF, thus flushing away capital gains (and also raising my cost basis for future loss harvest opportunities). Unfortunately, I cannot utilize the DAF for non-church giving, because my employer will match any giving to other organizations, but not to or via DAF, so I would rather do 200% of my dollars to organizations by using my company match. This means I really only have around $10k per year to send to DAF, the unmatched funds earmarked for church.

Our itemized deductions for both 2019 and 2020 were $35-38,000.

Is this OK or should we make a concerted effort to "bunch"? It will take me a long time (several years) to bunch up $40k while also continuing current giving.
You're getting the tax benefit of avoiding capital gains taxes on donated appreciated shares. That's a "win" for you.

Would you benefit from bunching your deductions? It doesn't sound like it, since it sounds like you'd be able to itemize ignoring the annual distributions you'll be making from the DAF. Bunching helps you out if you can move from standard deductions to itemized deductions when you contribute to the DAF, but it sounds like you're in itemized-deduction-land for all years.

If you don't benefit from bunching, then I think that your plan is totally sound.
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Re: Need advice with my first DAF

Post by MrJedi »

Doc7 wrote: Tue Jan 18, 2022 6:28 am OP, thank you for making this thread. I also plan to use a Fidelity DAF, using my weekly church tithe to buy new ITOT Shares in taxable and send > 1 year old appreciated shares to DAF, thus flushing away capital gains (and also raising my cost basis for future loss harvest opportunities). Unfortunately, I cannot utilize the DAF for non-church giving, because my employer will match any giving to other organizations, but not to or via DAF, so I would rather do 200% of my dollars to organizations by using my company match. This means I really only have around $10k per year to send to DAF, the unmatched funds earmarked for church.

Our itemized deductions for both 2019 and 2020 were $35-38,000.

Is this OK or should we make a concerted effort to "bunch"? It will take me a long time (several years) to bunch up $40k while also continuing current giving.
I do exactly what you do in terms of giving through the Fidelity DAF and then rebuying shares at a higher cost basis. The org is not setup well to accept shares directly, but the DAF just sends them a paper check which is easy for them to process.

You have no bunching benefit if you itemize every year regardless of the DAF.
Last edited by MrJedi on Tue Jan 18, 2022 7:36 am, edited 2 times in total.
nolesrule
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Re: Need advice with my first DAF

Post by nolesrule »

Grogs wrote: Tue Jan 18, 2022 4:19 am
nolesrule wrote: Mon Jan 17, 2022 9:06 pm
Grogs wrote: Sun Sep 19, 2021 10:54 pm
Just a note of caution: Vanguard absolutely refused to transfer VTSAX in kind to a Fidelity DAF when I tried. At least that was my conclusion over the course of a week and 4 phone calls. And every single agent would say something like, "No problem. We'll just liquidate those shares and then we can process the transfer in cash." I had to stop myself from screaming, "Don't you dare!" every time. Luckily, there's an easy work around. Just convert the lot or lots of appreciated VTSAX that you want to donate to VTI and then Vanguard will let the transfer go through. The conversion to VTI is a non-taxable event.
For people seeing this now, I had no problem donating shares of VTSAX in December 2020. I used their online gifting questionnaire to generate the form and send it in electronically. I only needed the transfer information for Fidelity's DAF to put in the form. Shares were transferred within 1-2 business days.
That's great! So you did a "push" from the Vanguard side to the Fidelity DAF "charity" and it worked? Did you have to do anything at the Fidelity side first before you sent it? Any trouble choosing the specific lots to transfer?

I'm planning to make another large donation to my FIDO DAF this year or next and if there's an easier process, that would be great. :beer
I followed these instructions originally posted here:
viewtopic.php?p=4847942#p4847942
I recently opened a Fidelity DAF, and I wanted to donate appreciated Vanguard ETFs in my Vanguard taxable account. First, I logged into Fidelity DAF account and filled out their transfer form online, and then I selected an option where I say I will contact Vanguard directly. And then, instead of sending Vanguard the form that Fidelity generated, I filled out Vanguard's "Give Shares or Securities to an Individual or Organization" form online. Vanguard lets you fill it out online after logging in. They let you sign via DocuSign (I think if you are donating millions of $, they still require medallion verification), so no faxing or scanning or mailing necessary. Vanguard's online form asks for the Recipient's Name (I put down "Fidelity Charitable Giving Account Number: [my Fidelity DAF account #]"), "Name of receiving brokerage firm" (I put down "National Financial Services LLC"), "DTC number" (I put down "0226"), and "Account number" (I put down "Z97-000442"). I filled them out based on the information found on the Fidelity form.
As I said, I did this with VTSAX. I had more lots to send than the Vanguard form could handle, so I had to create 2 separate forms.

Filling out the Fidelity DAF's form is helpful because it tells them to expect the incoming shares. I ended up sending more than I had put on the Fidelity form, and Fidelity Charitable called me to make sure that it was correct.
Doc7
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Re: Need advice with my first DAF

Post by Doc7 »

Stinky wrote: Tue Jan 18, 2022 6:46 am If you don't benefit from bunching, then I think that your plan is totally sound.
MrJedi wrote: Tue Jan 18, 2022 7:30 am You have no bunching benefit if you itemize every year regardless of the DAF.

Thanks for the advice. What I was unsure of, was if I should be standard-deduction for 2-3 years and then one year of itemization @ like $60-70k. But it seems like a lot of set up work when I am perfectly happy with the current system.
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Re: Need advice with my first DAF

Post by Stinky »

Doc7 wrote: Tue Jan 18, 2022 8:16 am
Stinky wrote: Tue Jan 18, 2022 6:46 am If you don't benefit from bunching, then I think that your plan is totally sound.
MrJedi wrote: Tue Jan 18, 2022 7:30 am You have no bunching benefit if you itemize every year regardless of the DAF.
Thanks for the advice. What I was unsure of, was if I should be standard-deduction for 2-3 years and then one year of itemization @ like $60-70k. But it seems like a lot of set up work when I am perfectly happy with the current system.
If you do benefit from bunching, you could still wrangle this if you have $60-70k of appreciated stock to donate in 2022.

Donate it in 2022. The DAF will sell your stock, and will give you options as to how to invest the funds. You can invest in a wide range of options, including equity index funds, inside the DAF. So you won’t lose the exposure to the equity markets as the DAF makes grants to your church.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Rus In Urbe
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Re: Need advice with my first DAF

Post by Rus In Urbe »

We love our DAF (it's at Vanguard). The benefits for the way we use our DAF:

1. Easy to make a new contribution from our holdings at Vanguard
2. Easy to track the charities, as you can look back several ways
3. Easy to show the IRS what's transpired (and of course one big transfer is so much simpler for them to see than a string of checks written to charities over the tax year.
4. Our tax accountant calculates what we need to contribute to take best advantage and we match or exceed that.
5. Returns. Our DAF is in the six figures, so (in an up-market year) it spins off lots of additional money to give away.
6. Immediate Tax Deduction (depending on your situation). Bear in mind, once the money is in the DAF it no longer "belongs" to you---this is an important thing to understand; instead, you become the ADVISOR to the fund and you are the one who recommends the grants to be made.

MANAGING THE DAF with market fluctuations:
We find it easy to time our giving to fluctuations in the market; obviously, there is no need to do tax loss harvesting in a DAF, so when the market is up, we shovel out a lot of grants. We keep our DAF more aggressively invested than our own funds; but we also keep a small portion in conservative instruments so that during a major downturn in the market, we can choose to give out from the more stable investments until the market recovers.

Finally, there has been much discussion about why FIDELITY is preferable to VANGUARD because there is a lower minimum.
Yes, Vanguard DAF takes 25K to start. That was not an issue for us.

But it also requires a minimum of $500 per gift. And this seems to be an issue for some.

I urge everyone who is a donor to think about the size of your gift because of what it requires from the non-profit to process that gift. I have worked in and among nonprofits for decades and I can tell you that the $50 or $100 gift, while helpful and representative of widespread grassroots support for a nonprofit (which can be useful) costs to process (thanking the donor, adding the name to the mailing list, etc.).

While I would never want to discourage someone from giving a small gift if that is the only thing possible, we go with the philosophy that it is better for us to give, for instance, one $1,000 gift than to disperse this into ten $100 gifts. So for us the $500 minimum at Vanguard is sensible.

Also, giving more to fewer charities cuts down on the snail mail you will get (though the DAF also gives you the opportunity to give anonymously, which cuts out the mail altogether). Unfortunately, there is no mechanism I know of to let charities know you don't need the mail---but that's another issue altogether.

Good luck with your DAF.....it has been great for us. :beer
I'd like to live as a poor man with lots of money. ~Pablo Picasso
shess
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Re: Need advice with my first DAF

Post by shess »

Doc7 wrote: Tue Jan 18, 2022 6:28 am Unfortunately, I cannot utilize the DAF for non-church giving, because my employer will match any giving to other organizations, but not to or via DAF, so I would rather do 200% of my dollars to organizations by using my company match.
I suggest doing a grant to test this. I named our DAF "The FirstName LastName Family Foundation" specifically to allow doing matching, and it worked fine for the majority of grants. The couple times there was a problem, it didn't feel like it was my employer giving me the guff about it. Once the charity was non-responsive (and it was a large national charity, so it changed my opinion about future gifts to them). The other time the third-party matching provider wasn't responsive (they kept telling me there wasn't enough information, but would not tell me what information there wasn't enough of, so it was impossible to fix from my end).
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