Vanguard, my preferred brokerage, has taken strides in recent years to make it very easy to donate appreciated assets. In this post, I’ll be walking through the process of contributing to a Vanguard Charitable donor advised fund (DAF) by donating shares of a mutual fund that have more than doubled in value.
You can do this right up until the end of the last day of the calendar year and still qualify for a tax deduction in the same tax year. This is not true when donating appreciated assets from a different brokerage to Vanguard Charitable or when donating from a Vanguard brokerage account to another organization’s donor advised fund. That process can take weeks, in fact.
The main difference between the two is the fact that the minimum grant from Fidelity is $50, whereas it’s $500 with Vanguard. Fidelity also has a lower minimum to start a fund (no minimum versus $25,000), lower additional contribution minimums ( no minimum versus $5,000), and slightly lower expense ratios on their investment options.
I keep my Vanguard Charitable DAF mainly for the simple and fast process they’ve designed for donating publicly traded assets from a Vanguard mutual fund or brokerage account directly to the DAF. I’ll go over that process step by step.
Vanguard Brokerage to Vanguard Charitable: How to Easily Donate Appreciated Assets
First, you must have a taxable Vanguard brokerage (or mutual fund) account (i.e. not an IRA or retirement account). I assume if you’re reading this post that you’ve got one already. If not, you can open an account with Vanguard here.
Second, you will need a donor advised fund with Vanguard. You can get started here.
Third, there is a process to link the two accounts. Vanguard Charitable describes that process in the following image from their FAQ.
Now that you’ve got both accounts and have them linked, let’s begin!
Contributing to Vanguard Charitable
Starting from the Vanguard charitable account, log in and click on the “Contribute” button.
You’ll be given a variety of options for making a contribution. Note that Vanguard assets contributed electronically can be submitted right up until a minute before midnight (Eastern time) on New Year’s Eve.
If you want to donate assets held elsewhere, you can select that option and you’ll be asked to enter the Holding Firm, Account Number, Ticker symbol, Fund name, Number of Shares, and an estimated dollar amount. Note that it could take days or weeks for the donation to actually take place, so I would do this in early December at the latest if you want the donation to count in the current tax year.
Additional options that aren’t pictured are to submit by wire or by sending in a physical stock certificate.
Today, we’re donating an asset (or assets) held at Vanguard, so we’ll select that.
Since we’ve already linked the accounts, we are eligible for electronic authorization. Vanguard Charitable sends us over to Vanguard.com.
Answer quick MicroSurveys for cash. Designed with convenience and timeliness in mind, 70% of surveys are answered on a mobile device in just a few minutes.
Physicians, Pharmacists, and other healthcare professionals are invited to join Incrowd today!
I hear complaints about the user experience at Vanguard.com, but I’ve always found it to be reasonably intuitive. Then again, I’m a Generation-Xer who remembers when Prodigy as a sort of pre-internet online service, not to be confused with musical act The Prodigy, which also thrived in the early 1990s. My expectations for a graphical user interface aren’t sky-high.
Once you’re logged in to Vanguard, go to My Accounts -> Tax Center.
In the lower right, click on the Vanguard Philanthropic Center link.
I was excited to see the “Give directly to a non-profit organization” heading. Unfortunately, it does not appear to be ready for prime time, and I expect the button to change to “COMING 2021” shortly. It will be a slick option for those who aren’t ready to start a DAF but would like to easily donate appreciated assets.
We are using a Vanguard DAF, so we click the “START DONATION” button under “Contribute to Vanguard Charitable”.
Since our accounts are linked, and I only have one Vanguard Charitable DAF, I select it and click NEXT.
If you have multiple accounts with Vanguard, select the one that holds the asset(s) you’d like to donate.
Now, we get to the part where we select an asset to donate. It’s not a bad idea to work this out ahead of time, but you’ll get the information you need on this page.
Typically, you’d want to give an asset with excellent long-term gains, i.e. a low cost basis relative to its current value. Do not choose any asset or lots that you’ve owned for under a year. When you do, you can only deduct what you paid for it, rather than what it’s worth today.
I went into the process I use to determine what’s got the highest percentage gains in this post on funding a DAF in much more detail, so check that out if you’re not sure how to decide.
Back in January of 2016, VTSAX, Vanguard’s Total Stock Market Index Fund, was down about 15% from the previous summer, and I tax loss harvested a large sum of money from the highly-correlated S&P 500 fund into VTSAX. Since then, the value of that lot has more than doubled, so that’s where we’ll pull some money from.
For today’s exercise, I decide to give about $25,000 of it to the DAF. You choose the number of shares rather than the dollar value, so I calculate about how many shares will get me to $25,000.
If I wanted to be fairly precise, I could wait until late in the trading day, check the price of the corresponding ETF to see the day’s price movement, and submit my donation shortly before 4 p.m. when the mutual fund’s price will be reset.
I don’t care much about precision today, and I’ll be making one more donation in the final days of the year when I have a better idea of what my total income for 2020 will be. 275 shares should do the job for now.
Vanguard Charitable has a number of simple asset allocation options for the money that remains invested in your donor advised fund, waiting to be granted to a 501(c)(3) charity. You’ll be asked where you’d like the new contribution to land.
I’ve put all of my money in the Total Equity option, which is 70% US stocks and 30% international, and that’s where this donation will go, as well.
Vanguard estimates the value of the donation based on the prior day’s closing price. If there is a major gain or loss on the day you submit your donation, this number will be off by as much as the market’s movement. That’s usually less than one percent, but as we saw in March of 2020, one-day price swings in a volatile market can be 5% to 10%.
Hit SUBMIT and the kind folks at Vanguard will thank you for your donation.
Later, you’ll receive an email confirmation, and when you log into Vanguard Charitable later, you’ll see the contribution and the actual dollar value of your donation. In this case, the fund gained value that day, and the 275 shares were worth about $375 more than they were the day before.
And we’re done! Read on if you want to learn more about DAFs or see how I move money from one DAF to another.
Bonus: Transferring Money from Vanguard Charitable to Fidelity Charitable
As stated in the introduction, I prefer to keep most of my DAF money with Fidelity Charitable. You can make a grant from one DAF to another, since both are 501(c)(3) organizations, and we use this fact to move money to our Fidelity DAF.
When I log in at Vanguard Charitable and select “Recommend a Grant,” it shows me a list of places that I’ve made grants to in the past. If you’ve never done this before, search for the name of the DAF you’d like to send money to, and enter in the search field under “Find a Charity.”
The official name for the recipient is Fidelity Investments Charitable Gift Fund. My checks (or electronic transfers) are sent to a Cincinnati, OH address, but I’ve also seen a Boston, MA address. Either should work.
Be sure to enter the name and account number of your Fidelity Charitable account when making the grant from Vanguard Charitable. I do this under “Grant Purpose,” selecting “Other” and typing in my account info.
I made a phone call or two before doing this the first time to make sure it would all work out, and thankfully, it did. Now, I do it routinely. In 2019, after making our year-end donation to Vanguard DAF, I sent most of that money to the Fidelity DAF.
A Great Time to Start a Donor Advised Fund
Making a donation increases your itemized deductions, and as long as your itemized deductions exceed the standard deduction, you can fund a DAF (or grant directly to other charities) to drop to a lower marginal tax bracket, regain a phased-out tax credit, increase your QBI deduction, and much more.
Also, realize that tax-advantaged giving simply puts more money into the hands of charity for every dollar you part with. If you want to be as generous as you can be, make your donations in the most tax-efficient way possible.
For a lot more info on the benefits and practical applications of gifting via a donor advised fund, please see our other posts on the topic.
Are you using a donor advised fund? Do you contribute appreciated assets? Have you shifted a balance from one fund to another? Share your tips below!