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Donor advised funds vs direct charitable contribution? Advantages of each?
Posted on 5/11/26 at 5:51 pm
Posted on 5/11/26 at 5:51 pm
Just curious.
We've always directly contributed to charities, but now have a couple of old mutual funds we're looking to gift out via DAF's.
One time deductions are a favorable DAF feature especially as we consider tax ramifications of a backdoor IRA => Roth.
We've always directly contributed to charities, but now have a couple of old mutual funds we're looking to gift out via DAF's.
One time deductions are a favorable DAF feature especially as we consider tax ramifications of a backdoor IRA => Roth.
2
Posted on 5/11/26 at 6:14 pm to NC_Tigah
If you are trying to avoid paying capital gains tax, DAFs are a solid choice. You can transfer earnings (actually appreciated stock) from investments (non-retirement accounts) to a DAF with no capital gains tax penalty.
Posted on 5/12/26 at 6:03 am to Antonio Moss
Wife and I set up a DAF. We get to lower our AGI each year by donating to ourselves.
Posted on 5/12/26 at 8:05 am to evil cockroach
quote:Yikes.
We get to lower our AGI each year by donating to ourselves.
The premise being "Charity begins at home?"
Posted on 5/12/26 at 8:29 am to NC_Tigah
As long as they are actually using the contributions to the DAF for charitable purposes, all good.
If they are using DAF funds for personal expenses, that’ll be one hell of a thing to explain to an auditor.
If they are using DAF funds for personal expenses, that’ll be one hell of a thing to explain to an auditor.
Posted on 5/12/26 at 9:48 am to horsesandbulls
quote:which is what we do
As long as they are actually using the contributions to the DAF for charitable purposes, all good.
Posted on 5/12/26 at 11:14 am to NC_Tigah
I'm involved in the same thing as you. I have been donating using cash flows the past several years, but its time to do the DAF. I was not ready to commit and had other priorities, but after the 2025 return its time to address.
Over the long haul if you are charitable its a no-brainer. I was told that once you put money in the DAF you can't get it back.
I don't think there are any downsides besides you can't get the money back once it goes in the fund.
Still learning before I jump in.
Over the long haul if you are charitable its a no-brainer. I was told that once you put money in the DAF you can't get it back.
I don't think there are any downsides besides you can't get the money back once it goes in the fund.
Still learning before I jump in.
Posted on 5/12/26 at 11:31 am to Mariner
quote:I believe that this is true. it's "locked up" in your charity where you get to pick the investments and charitable grants that go out at a later date.
I was told that once you put money in the DAF you can't get it back.
This post was edited on 5/12/26 at 11:32 am
Posted on 5/12/26 at 5:33 pm to evil cockroach
quote:It's definitely true.
I was told that once you put money in the DAF you can't get it back.
---
I believe that this is true.
No question about it.
The decision is a one-time tax write off vs marginally deductible, incremental, charitable donations. The OBBB (no complaints btw) heavily taxed our previous charitable patterns. DAF, it seems, would be a way to gain tax credit for charity in our instance.
E.g., We have a MF we've held for ages. It was one of our first investments. We reinvested dividends, and over the years the thing has ridiculous Cap Gains relative to the fund size. We are considering moving the whole thing to a DAF. It seems like a no brainer.
Any money matter that seems like a "no brainer," leaves me wondering if I'm missing something.
Posted on 5/12/26 at 5:43 pm to NC_Tigah
quote:
seems like a "no brainer,"
It is. I use Vanguard Charitable which is pretty seamless when transferring funds from Vanguard to the DAF. Have not tried other institutions.
If you are looking into this or think you may do so in the future, make sure your funds are set up as "FIFO" - First in First Out. That way when you make a sale/transfer, they are selling the most appreciated purchase if you have been dollar cost averaging or adding to your initial investment. That way your most appreciated gains are gone with the donation.
Posted on 5/12/26 at 5:54 pm to Cdonaldson27
quote:Thanks.
make sure your funds are set up as "FIFO" - First in First Out.
Great point for readers here.
Great point.
In this instance, it's non-applicable. We would be moving an entire old old fund holding over.
There is no cap gains applicable FIFO in this situation.
This post was edited on 5/12/26 at 5:56 pm
Posted on 5/12/26 at 6:37 pm to evil cockroach
The big thing I like is getting to December and realizing April will be brutal, and dumping a ton of money in it quickly, then the next year planning another tax saving tactic as the fund already has funds for several years of charity.
It’s all relative to how charitable you want to be though.
It’s all relative to how charitable you want to be though.
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