The Donor Advised Fund, a Smarter Way to Give

A 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.

Set For Life

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. 

My Donor Advised Fund Plan


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 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 palpable difference locally. 

I plan on using my DAF to eliminate that 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 DAF balance is about 8% of my nest egg.  I’d like that to closer to 10% at retirement in accordance with my Investor Policy Statement.  I don’t think I will walk away feeling the least bit guilty if every 10th day’s income 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.  My current plan is to wait a few years until my taxable account (hopefully) has some decent capital gains, then start superfunding my DAF with close to 30% of my income each year for several years until I reach my goal, donating the funds that have the largest capital gains. 


doing the most good

I also plan to donate half of any proceeds from this site to my DAF as part of this blog’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 towarsd 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% medicare surcharge for most of us).  If the $100,000 donation has a cost basis of $50,000 (you bought in 2009 and the fund has doubled), you’re saving about 25% of the $50,000 gain by avoiding the capital gains, so that’s another $12,500 saved. 

So… how much does it cost?  It depends on the situation, but for me, it costs about $60,000 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 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 $ could go with it (this happened to the National Heritage Fund in 2009).

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 longer 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 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 lower).  This is comparable to the tax drag one would see if the money were kept in a taxable account (2% dividends taxed at 30% = 0.6%).




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


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 it very well and has a nice, simple chart comparing four of the most popular DAFs.  I wish I had seen this before I got started with my own DAF and before I first published this post.

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

What, you’re still not using Personal Capital? Track all your accounts in one place like I do.

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  • 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.

  • 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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