If you’re like most Americans, you dedicate some portion of your budget each year to charitable giving and supporting causes that matter most to you and your family. Whether you give to a hospital, to a school you attended, to support children in need, or to any other organization, there are ways you can make an even bigger impact. By engaging with tax-smart giving and utilizing a donor-advised fund (DAF), you can unlock a door to amplifying your charitable compassion.
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What is a Donor Advised Fund?
A donor-advised fund works as a separate account for the main purpose of supporting charitable organizations that matter to you. According to Fidelity Charitable, “When you contribute cash, securities, or other assets to a donor-advised fund, you are generally eligible to take an immediate tax deduction.” This kind of account is often also referred to as a 501(c)(3) plan, which you may commonly associate with a church or other non-profit organization. A donor-advised fund is made up of individual contributions that are managed by the sponsoring 501(c)(3) organization, according to the IRS.
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How do Donor Advised Funds operate?
A donor advised fund works primarily in three ways: 1) Making a tax-deductible donation; 2) Growing your donation, tax free; and 3) Supporting charities you love, now or over time.
- Making a tax-deductible donation
When opening a donor advised fund, contribute cash, stocks, or non-publicly traded assets like private business interests or a private company stock to be eligible for an immediate tax deduction. According to the San Diego Foundation, “Contributions to DAFs are irrevocable, meaning assets cannot be taken back once they are gifted.” This allows for immediate tax deduction to take place, and your contribution can grow over time.
- Growing your donation, tax free
While you and your family take some time to decide which organizations to give to, your donation has the potential to grow in a DAF. Be sure to talk to your financial advisor or professional about your investment strategy for charitable giving.
- Supporting charities you love, now or over time
When you are ready, you can choose where the funds in your donor-advised fund (DAF) will make their impact. As the owner of your DAF, you have the right to make grant recommendations. This means that your DAF can “support any eligible IRS-qualified public charity” of your choosing, according to Nerdwallet. This gives you the freedom to support the charities that matter most to you at a pace that feels comfortable to you.
How can a Donor Advised Fund Best Support You?
There are many ways you can benefit from a donor-advised fund, but a particularly important feature to highlight is the ability to incorporate your donor-advised fund into legacy planning. Fidelity Charitable states, “Many sponsoring organizations enable you to create a succession plan for your donor-advised fund—allowing you to pass the remaining funds in your account on to your heirs or your favorite charities.” By donating to your fund, you can plan for your future, your children’s future, and support the future of the charities you choose.
If you are interested in discussing a donor-advised fund and what it can do for you and your family, contact a OneAscent Wealth advisor today!
Investment advisory services offered by OneAscent Wealth Management, LLC, a registered investment advisor with the United States Securities and Exchange Commission.