Charitable Donor-Advised Funds: A Tax-Efficient Gift

In this season of giving, many of us are looking for opportunities to give back and share our generosity. However, what if your gift could reach further than spreading holiday cheer? The benefits of charitable giving extend beyond generosity, to enable strategic tax planning perks. Those seeking to support a nonprofit are encouraged to identify a section 501(c)(3) organization who sponsors a donor-advised fund (DAF), a specific charitable giving account offered by public charities. Here, Pat Schneeman, CFP®, Senior Wealth Manager, provides a quick guide on the basics of charitable donor-advised funds and their tax efficiency.

Charitable Contributions and Growth

DAFs allow individuals to donate cash, appreciated stocks or other assets as tax-deductible charitable contributions. Once within the fund, these assets can grow tax-free, amplifying the potential impact of the charitable gift. The sponsoring organization has legal control over the contribution, but the donor keeps the privilege of advising for the distribution of funds or the investment of the assets within the account. In this way, both parties work together to make the most of the charitable gift.

Tax Efficiency and Strategic Giving

Given the high standard deduction threshold, many individuals may not currently receive a tax deduction for their charitable giving. DAFs offer a solution by enabling donors to lump multiple years of charitable gifts into a single tax year, optimizing tax savings. Especially during high-earning tax years, and with the current favorable Federal tax rates, leveraging DAFs can be a powerful tax-saving strategy. DAFs also work well in tandem with strategies like Roth conversions, allowing individuals to optimize our current favorable tax brackets efficiently.

Tailoring DAFs for Different Life Stages

Young accumulators (individuals starting their careers) can strategically utilize DAFs by building a significant charitable fund over time.  This is possible because a DAF invests an individual’s charitable funds to a portfolio allocation which allows the fund to grow tax-free.

Alternatively, for those later in their career and in their highest-earning years, donating to a DAF compliments tax planning, while leveraging DAFs becomes instrumental in magnifying their charitable impact over their lifetime.

Helping You Get There…

Donor-advised funds are an increasingly popular option for individuals seeking to optimize their charitable giving efforts. By harnessing the potential of DAFs and integrating them into their tax planning strategies, individuals can build a legacy of impactful giving that resonates with their values while boosting the benefits for both them and the causes they support. Before you contribute to a DAF, it’s important to consult an experienced wealth management advisor who can break down the complexities of DAFs and assist with tax planning to maximize the impact of your charitable gift. Connect with a member of the Boulay Financial Advisors, LLC team today to discuss how charitable donor-advised funds can fulfill your philanthropic and tax-planning goals.