The Donor Advised Fund : A Smarter Way to Give

Set For LifeA donor advised  fund (DAF) is an excellent and tax-efficient way to give to charity.  The vast majority of my charitable giving is to and from my DAF.  There are several big advantages to using a DAF as opposed to giving cold, hard cash, or writing checks.

  1. You get a tax deduction in the year that you donate to the fund that you control.
  2. You can give from the fund to charities of your choice years later.
  3. You can donate equities that have appreciated and nobody owes capital gains tax.
  4. Your donated money can remain invested in index funds.

I started my first DAF several years ago when I had large capital gains and wanted to bring my taxable income down.  I had some T. Rowe Price funds that had sizeable gains and I donated them to start my DAF with the T. Rowe Price Fund for Charitable Giving. 

A couple years later, as I learned more about investing and fees, I realized I would probably better off keeping my dollars with Vanguard.  So I moved my taxable account to Vanguard and my DAF to Vanguard Charitable.  When I realized that the minimum grant from Vanguard Charitable was $500, I opened another DAF with Fidelity Charitable, which allows donors to give as little as $50 at a time. 

Over the last five or six years, I’ve opened three separate DAFs, but only two remain funded. I use Vanguard when I am donating a grant of $500 or more and Fidelity when I wish to grant $50 to $499 (not that I’ve ever given $499)

The Donor Advised Fund: A Smarter Way to Give


One of my biggest hangups with the concept of an early retirement is the fact that I’m giving up the potential to continue earning money that could be used for the greater good.

 I should have more than enough money for my family and I when I retire, but if I kept working, great things could be accomplished by donating those future earnings.  I’m not talking bill Gates or Warren Buffett kind of money, but $10,000 here and $20,000 there could make a noticeable difference locally. 

I plan on using my DAF to eliminate that mental hangup.  I treat it a lot like I treat my retirement nest egg.  I will keep working until it is large enough to satisfy my desires. 

Currently, my combined DAF balance is just over $200,00 and I plan to boost it to $250,000 this year (my last year with mostly full-time anesthesia income since I am now part time) in accordance with my Investor Policy Statement.  I don’t think I will walk away feeling guilty knowing that every 10th day’s income in my abbreviated career ended up going to charity. 


Rules of Donor Advised Fund Giving


When donating appreciated mutual funds, as I do, you are limited by IRS rules to giving 30% of your adjusted gross income in any given year. When donating cash, you can give and deduct up to 50% of adjusted gross income. 


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I also plan to donate half of any proceeds from this site to our DAF as part of my site’s charitable mission.

When the DAF is fully funded, I will continue to treat it like a nest egg, donating around 4% or 5% per year, perhaps more when market returns are good.  I should be able to make it last indefinitely if I’m careful, and I can give big with what’s left towards the end of my time on earth.

How much does it cost to put $100,000 into a DAF?  This is not a trick question, but it does depend on your marginal tax rate.  If you live in a state with state income tax, at a physician’s salary, your marginal tax rate is probably in the 35% to 50% range.  Donating $100,000 will reduce your tax liability by $35,000 to $50,000. 

If you are donating appreciated mutual funds like me, you will avoid capital gains (15% or 20% plus state income tax plus 3.8% ACA / NIIT surtax for most high-income professionals). 

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If the $100,000 donation has a cost basis of $50,000 (you bought years ago and the fund has doubled), you’re saving about 25% of the $50,000 gain by avoiding the capital gains, so that’s an additional $12,500 saved on taxes in the year you donate (as compared to selling the fund and paying capital gains. Of course, there are other ways to reduce or avoid capital gains taxes.

So… how much does it cost?  It depends on the situation, but for me, it costs about $58,000 to donate $100,000, and that’s without factoring in the potential savings in capital gains. 


Downsides of a Donor Advised Fund


Are there drawbacks to using a Donor Advised Fund?  Sure.  You can’t take it back.  A card laid is a card played.  As with any charitable giving, once you give, the money is no longer yours. 

You will retain the ability to direct where the money goes from your fund as long as it goes to a bona fide 501(c)(3) charity.  Also, there are minimum donations to open an account, and minimum grant amounts when you give from your fund.  If you go years without giving at all, the Fund can choose to donate for you.  If the parent company goes belly up, the money could disappear with it (this happened to the National Heritage Fund in 2009).

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Another drawback that deserves mention is that building up a DAF as I plan to do will obviously delay your retirement, or at least delay reaching your retirement goals.  It will take me an extra year or so to reach my goal numbers for an early retirement, because I will be diverting funds to charity.  It’s a choice that I believe will make me feel more comfortable leaving the medical profession well before my 50th birthday.

As I mentioned above, I now have two DAFs.  The Vanguard Charitable Fund makes it easy to transfer funds from my taxable account to my giving account.   I have a Fidelity Charitable account so that I can make grants as small as $50.  Both have a variety of investment options with low fees and make it easy to make grants when you wish.  Both have an additional annual expense of 0.6% (or $100 with Fidelity, whichever is higher).  These fees are comparable to the tax drag one would see if the money were kept in a taxable account (2% dividends taxed at 30% = 0.6%).

Post-Publication Update


Since writing this post ten days after I started the Physician on FIRE website, I’ve written several posts on the topic.

I have also inspired several bloggers to start donor advised funds of their own and write about their experience, further spreading the concept among our collective readership. I have also heard from several other physicians who followed my lead and donated $100,000 or more to start a DAF of their own.


For more information on strategies and tactics when using a donor advised fund, visit Michael Kitces’ writeup here at the Nerd’s Eye View.  He explains the process in great detail (as Kitces has been known to do) and has a nice, simple chart comparing four of the most popular DAFs.



What do you think – are you compelled to be like Supertramp and Give A Little Bit?  Would you (or do you) use a donor advised fund?



  • This is really interesting, thanks for sharing. I’ve discovered the major advantage of donating stocks and enjoying the full deduction without paying capital gains taxes, but I hadn’t reached the next level of sophistication the DAF offers. This definitely gives me some new things to think about as the “value” of donating now against my big income is much higher than in a few years when I play to FIRE. So if you donate through Vanguard DAF, can you still keep your money in any stocks you want to?

    • When you open an account with Vanguard Charitable, you choose your investment. There are no individual stocks, you have the choice of single index funds, multi fund options, and a hedge fund.

      Another advantage of the DAF versus donating appreciated assets directly is the ease of donation. You can search among millions of charities and with a few clicks, you’ve given the money. I’m not sure if it’s as easy when dealing with individual charities and direct giving of equities.

      If I only had one DAF, I might choose Fidelity for the lower minimum grant of $50, as opposed to Vanguard’s $500 minimum. I gave to 14 charitable organizations last year, giving less than $500 to half of them. When the DAF grows to a plump 6 digit figure, I won’t be sweating the $500 minimum grant, but with a 5-figure fund, it’s nice to be able to give less and spread your giving around without depleting the fund.

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  • Mike

    Kitces article implies a 0.6% admin fee for both Vanguard and Fidelity. Is this accurate?

  • DMoney

    So I had finally convinced my husband we should pony up the $25,000 to start a Vanguard DAF since we have been very blessed financially and have done an embarrassingly small amount of charitable giving. We are mid-30s, probably at our highest earning of our lives, rent our home, and have precious few tax deductions (hello, AMT). Thus it seemed like as good a year as any to drop the $25k for the tax benefit.

    He did some research and found learned about the Pease Limitation which basically negates any tax benefit to us.

    Have you encountered this, PoF?

    • I’m glad you checked in, DMoney, because I was under the same misconception before I found a good explanation. The Pease limitation is labeled as a cap on itemized deductions, but in effect, it’s not.

      You still get the same dollar for dollar deduction for charitable giving, as I described in the Top 5 Ways to Lower Your Tax Bill. For a more nuanced explanation, see this link.

      When you’re ready to pull the trigger, as you ought to be after reading the linked posts, I recommend Fidelity Charitable. I have both Fidelity and Vanguard DAFs, but the minimum grants and amount to open are much lower with Fidelity. You can give $50 at a time, rather than the minimum of $500 with Vanguard.

      Just today, we gave $100 from our Fidelity DAF to the hospice that cared for the deceased, rather than sending flowers that will just wilt in the heat.


      • DMoney

        We were investigating this more closely this evening, with the end of the tax year approaching. I think my husband is correct, after we combed through the minutiae of the tax code and the Pease limitation. We are high earners with few deductions because we rent our home and don’t pay state income tax. So far we always just take the standardized deduction ($12,600). I was kicking around the idea of starting a DAF with $25,000. Our back of the envelope calculation is that this contribution would only save us $1200 on our tax bill (less than 5% of the 25k contributed, as compared to 39.6% savings others in the top bracket can expect from charitable giving).

        This is a quote from the link you provided for the more “nuanced explanation”. We are one of those few and far between couples. Bummer. I think we’ll continue giving in small ways and reconsider starting a DAF if we buy a house.

        “There is one caveat, which applies to high-income taxpayers whose itemized deductions are extremely small relative to their incomes. If the aforementioned couple’s contributions, taxes, mortgage interest, and certain other deductions had been less than $18,750, then Pease would have used a different formula to compute the extra taxable amount — that formula actually would have reduced the couple’s incentive to claim additional deductions. But, high-income taxpayers with such small deductions are few and far between. And certainly no charity should rely on them for financial support — by definition, people with few itemized deductions aren’t big givers. ”

        I guess we’re not when the tax code discourages us to be!

        • I’m glad you looked into it, and I’m sorry to hear it won’t work out in your favor. You are indeed among the few and far between. My state income tax alone is more than double the standard deduction. Most physicians will also be paying a decent sum in property taxes and mortgage interest.

          Without any of those expenses, for better or worse, you’re not in a position to benefit nearly as much from charitable giving. As you stated, it may be worth looking into again if you’re in a situation where your itemized deductions approach or exceed the standard deduction.


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  • For those really interested in donor-advised funds I’d encourage you to check out this podcast episode that dives deep into how nonprofits can best work with donors that are using DAFs

    I co-host this podcast and think it is one of the best episodes we’ve done and really dives deep into this topic.

    • Thanks for sharing, Tim! I’ll be happy to give it a listen.

      I’ve doled out dozens of grants now, and I haven’t run into much trouble. I’ve had to request the Tax ID from a few of the smaller charities that I couldn’t find listed in Guidestar and I’ve had a couple grant checks that were never cashed and eventually refunded to my account. But our success rate in giving this way is certainly > 95%.


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  • Honeyfill

    I’ve been reading through your articles on DAFs. they seem like a great way to give money and control some of the taxes as well.
    I plan to give a relatively large amount this year since we are still working and can use the tax write off. Next year we plan to retire and will be trying to control our account withdrawals to minimize taxes and to stay under the income limits for ACA subsidies. My question is this. Say we approach the end of 2018 and for whatever reason we find our taxable income will be too high for ACA subsidies. Can you use the DAF contribution to lower your income for ACA purposes and get back under the income limits?

    • Honeyfill

      I did a little research and answered my own question. ACA subsidies are based on AGI. They are not based on taxable income. Deductions for charitable giving will not work toward getting the subsidies.

      • Thanks for the update, Honeyfill. That’s really a bummer.

        It could be that donating a large amount this year (from taxable) will lower your dividend income enough next year to keep your AGI low enough for the subsidy, assuming it still exists.


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  • This is awesome. I have never heard of a Donor Advised Fund before. I just read your most recent post about it which lead me here to better understand what it is.

    It sounds like a great way to give back, I’ve always planned on giving back but I never really knew the best way and this looks like a solid way to donate to the community.

    Also I completely agree with you when you said “One of my biggest hangups with the concept of an early retirement is the fact that I’m giving up the potential to continue earning money that could be used for the greater good.”

    I don’t know how you could give free anesthesia but something I am going to do when I become financially independet is give free dental work to pateients that I work with. Go on service misions. I’m excited to really give back. Which is a reason why I probably wont retire early.

    Anyways, Thanks for the info! I’ll continue researching the topic to get a better understand of how and when I should utilize a DAF in my life.

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  • Monesthesiologist

    PoF, thinking of starting a DAF to meet my family’s charitable goals. I am currently in residency and will remain in training for the next couple of years. We already donate charitably in cash ~10% net income. My question is, would a DAF allow me to minimize taxes if I am already in a pretty low tax bracket? I’m talking really low donation amounts, hundred dollars here or there. I take it there is a minimum opening donation amount for Fidelity Charitable? Might seem silly but I figure why not start now if we plan to do this anyways. As you said, better .40 going where I want it to go than 1.00 going where the government wants it to go… I think that was you anyways!

    • Good for you for wanting to do this.

      Fidelity Charitable does have a $5,000 minimum to open and you won’t be taking a tax deduction unless your total itemized deductions exceed the standard deduction of $24,000 (assuming married since you said “we”). Tough to do as a resident.

      It might make more sense to wait until your first year (or half-year) as an attending to start a fund.


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