Donor Advised Funds

A tax-advantaged investment vehicle for charitable donations.

#finance

It’s getting close to the end of the year. During the holidays, lots of people are looking to donate to charity.

Until last year, I wasn’t sure how to effectively do that. Obviously, you can just give cash, write a check, etc. - but being a personal finance nerd, I figured there was a better way.

Note: Do your own homework and consult a financial advisor before making any decisions. This post is not intended to be a financial or tax advice.

Enter Donor Advised Funds (DAFs). DAFs are a tax-efficient investment vehicle for charitable donations.1

Here’s the basic idea: you donate to a DAF, and you’re able to immediately deduct the donation from your taxable income. $1000 into the DAF is a $1000 deduction on your taxable income.2

Once that $1000 is in your DAF, you can invest in a variety of ways. You can keep the money in the fund until you’re ready to give it to a charity. During that time, the $1000 can grow, just as it would in a 401k or IRA. You can invest it in bonds, ETFs, or even crypto.

I use Daffy (referral link)3 to manage my family fund. It’s easy to use, and they take care of all the donations, account management, and basically every part of the process. I add to my fund on a monthly basis, and the fund is heavily allocated towards crypto4. If you don’t want to have a crypto fund, you can invest it in a variety of allocation styles, all centering around cash, bonds, ETFs, with varying degrees of risk.

There’s other tools in the market, but Daffy is super easy to use, and reasonably priced. I’m on the $3/mo plan, and Daffy also covers all the fees for adding money to the account, as well as giving to charities. Lots of other tools are charging either in the 0.6% range, or $100-$250 yearly. They also take an investment expense fee of ~0.5%. Lots and lots of fees, which is especially annoying when you’re trying to do this for a good cause. Check out Daffy’s post on fees to learn more.

It was my first year using a DAF in 2023, and I really enjoyed the process. It’s awesome to be able to grow a charitable fund through investing. I’ll be increasing my donations into my DAF over the next few years, and I’m happy with Daffy as an all-in-one solution for managing the fund. If you’re interested in donating to charities - and getting a tax benefit along the way - I can’t recommend it enough.

Footnotes

  1. Shout out to Chris Hutchins from All The Hacks - I first heard about DAFs on his podcast. ↩

  2. To a point: you can only contribute up to 60% of your adjusted gross income (AGI) to a DAF. ↩

  3. For every signup, we’ll both receive $25 in funds to give to charities. ↩

  4. Importantly - you’re not buying crypto. The fund is invested in crypto, and you’re buying a stake in that fund. ↩