Charity-Donor Advised Funds

From Bob Jennings at TaxSpeaker. Check out more at taxspeaker.com

Donor advised funds (IRC Sec. 4966)

A donor-advised fund (“DAF”) is a charitable vehicle housed within a 501(c)(3) public charity that allows a donor to make a gift, take an immediate charitable deduction, and recommend, typically with strong persuasive authority, future grants made from funds in the DAF. Unlike private foundations that require a minimum annual distribution, a DAF has no distribution requirements and can allow investment funds within the account to build up for years or even decades.

A donor-advised fund is a great way to work around the relatively high standard deduction on taxes, which may limit your ability to gain additional write-offs for your charitable contributions. It also allows the taxpayer to generate the deduction this year, but divvy out the funds in future years. For  2026 a deduction is limited to 60% of AGI if made in cash.

By making a charitable contribution to a donor-advised fund (before year end), you’re able to deduct that amount as charity this year (subject to the 60% of AGI limit). Meanwhile you can distribute the funds in later years, and the money can even grow tax-free in the fund, providing more benefit to the charity.

From the perspective of the organizations you support, nothing changes, but the donor-advised fund allows you to control the timing and amount of your charitable tax deduction.

Donor advised funds are offered by Fidelity, Vanguard and most brokerage houses.

Donors can also contribute a wide range of appreciated assets, including stocks, bonds, mutual funds, privately held business interests, restricted stock, and even bitcoin and other cryptocurrencies. Donors contributing securities or other assets can take a deduction of up to 30% of adjusted gross income. The deduction is at fair market value if held for at least one year before the donation, and the donor avoids capital gains tax on any inherent gain in the asset at time of donation.

Account holders can make donations all at once or over time, and to a single charity or a variety of charitable organizations. Donor-advised funds do come with an additional layer of annual administrative costs. Fidelity, Vanguard, and Schwab all charge a 0.6% administrative

fee for accounts with balances up to $500,000.

A donor advised fund MAY NOT BE USED for a qualified charitable distribution from a retirement account.