Married Finances: Donor Advised Fund

The Why of Donor Advised Funds

I’ve always been intrigued by Donor Advised Funds. Now that we’re married, we will no longer itemize by default, so Donor Advised Funds seem a great way to itemize sometimes. By my initial calculations, we will be able to itemize $12,320 in 2016 before any further charitable donations and not counting my husband’s charitable donations thus far this year. That’s $280 short of the married standard deduction. If we take each of our separate charitable savings accounts, as well as our separate desired charitable donation rates of our expected gross incomes for this year and next and contribute that to a Donor Advised Fund, then we should be able to itemize closer to $20,000 in 2016, which is a reasonable additional tax savings.

We would then make our 2016 and 2017 donations out of the Donor Advised Fund and in 2018, group contributions to the Donor Advised Fund to cover 2018 and 2019 income. This will become even more key going forward as the mortgage interest paid gets lower and lower each year as the mortgage amortizes and we will likely lose that deduction entirely in the next few years.

It’s even better to do this this year as I expect we could drop a tax bracket in 2017 and it’s better to take more deductions when you’re in a higher tax bracket.

Another benefit is that we can take appreciated shares from our taxable accounts to contribute to the Donor Advised Fund, rather than donating to charities with cash. My taxable account is aged enough at this point that about three quarters of its shares have long-term capital gains, so I would use those shares to contribute to the Donor Advised Fund and then avoid paying capital gains taxes on the shares.

Where to open one?

Vanguard, Fidelity, Schwab all offer them, with a variety of minimums and fees.

We both have all of our non-workplace investments at Vanguard, so that seems like a great place to start. Unfortunately for us, their minimums are far higher than what we are prepared for at the moment: you need $25,000 to open a new account, each additional contribution must be at least $5,000 and each charity grant must be $500.

Currently, we both tend to donate $50-100 to charities on occasion and would prefer to be able to continue doing that for the near future.

Fidelity and Schwab, on the other hand only require a $5,000 commitment to open a new account and allow you to grant as little as $50 at a time to a charity. Schwab’s minimum additional contribution is $500. According to Bogleheads, Fidelity’s is $1,000, but I can’t find that on their website. They both have a minimum administrative fee of $100, which seems reasonable to me for the tax savings.

We both have checking accounts at Schwab because they offer unlimited international ATM fee reimbursements. Those accounts might be a good one to combine in our combining of accounts considering that we usually travel internationally together and even before we were married, we never tracked cash separately – whoever had the right denomination of cash was the one who paid and I always got to keep the coins. This worked out great for me when we would travel to countries with bills no smaller than a five. Thus, Schwab is a reasonable contender for our Donor Advised Fund.

One of us has some workplace accounts at Fidelity and I have the Fidelity Visa, so that could also be a reasonable place to open our Donor Advised Fund.

It does appear that if we changed our minds on how much we donate to charities at a time and wanted to switch over to Vanguard later, we could do so by submitting a grant proposal to our new donor advised fund at Vanguard, so we’re not long-term committed to whichever provider we choose.

I did all of this research, presented it to my husband, and he cut me off while explaining why I would pick Schwab to explain which one he would pick, which turned out to be Schwab. So it looks like we are going with Schwab!

What does it take to open one at Schwab?

You need to provide all of the normal information you do when opening an account: name, SSN, date of birth, home and mailing addresses, employment status and occupation. You provide a primary account holder and secondary account holders, which both have full and equal privileges. You can designate successors and/or beneficiaries. You indicate the investment options you prefer, which can be as simple as Schwab’s Total Market Equity Index fund or a Money Market fund if you don’t plan to keep assets in the Donor Advised Fund for too long before granting them to charities.

Your initial contribution needs to be at least $5,000. It looks like the simplest way to transfer money into the Donor Advised Fund is to have the assets already in a Schwab brokerage account, to write a cash check, or to do an ACH transfer from another bank account. You can, however, also transfer shares from another institution. Our plan is to transfer shares from our separate Vanguard taxable accounts that have long-term capital gains as Schwab Charitable can pull from two separate Vanguard accounts.

What to name it?

My vote is for either “The HerLast HisLast Charitable Fund” or “The HisLast HerLast Charitable Fund”. We are still discussing which ordering sounds better and our discussions are proving inconclusive. Someone on Twitter suggested “The FewerSyllables MoreSyllables Charitable Fund”. We’re both relatively indifferent to the names ordering.


Next up: follow up on these action items and get our initial contributions in before 12/31/2016…


30 thoughts on “Married Finances: Donor Advised Fund

  1. This is a great reminder for us to get our act together and get this done.

    I am actually wondering why Vanguard has the bar so high for something that is so important. For very high net worth folks, of course not a problem but for the vast majority of folks it is not gonna happen. With so many funds available at Vanguard with $1k or $3k minimum, why Is it they can’t offer a DAF that is a tad more reasonable to buy into. Here is where Fidelity and Schwab wins which is something I don’t say often.

    Thanks for the write up and reminder.

    • Happy to help, Mr. PIE!

      Vanguard has higher minimums in general than other brokerages. You do make a good point about them having funds with $3k minimums. At the very least, it appears easy to transfer assets from one DAF to another, so we would probably switch to a Vanguard DAF when we have more assets to donate and want to make larger donations.

  2. I think we’ll be opening one up at Vanguard next tax year. We still have to sit down and figure it out though, especially if we would get any benefits from doubling property tax payments every other year, in which case it might make sense to not open a donor advised fund, but to do the same doubling with our major donations. We’ll see.

    • What if you doubled donations AND property taxes? Would that work out better than just doubling up one? I can’t double up property taxes and mine are under $4,000 per year at the moment, which is well under the standard deduction, so DAF it is for us.

      • Yeah, that’s the idea, do that every other year and take the standard deduction every other year. But I need to actually run the numbers (or rather, make DH run the numbers since he’s in charge of taxes).

  3. If you wish to give anonymously (and thus not be hit up for more cash by the charities) you might consider naming your DAF something completely random that wouldn’t easily identify you.

  4. That’s great to know that Fidelity and Schwab offer smaller-contribution DAFs. I had looked at Vanguard last year but decided not to open one because of the $25k minimum. I’ll definitely be exploring this again!

    • Yeah the $25k minimum is way beyond what we want to be donating at the moment. The $5k initial buy-in for Fidelity or Schwab is quite on point! I’ll keep you posted as to how it actually goes opening it…

  5. We will probably open a DAF once we have more taxable assets (being able to avoid ltcg is such an awesome benefit, do you know if irs wash sale rules apply for moving assets to daf?), though probably not anytime soon. It’s hard to predict tax benefit since our tax situation is bound to change in the bearish term as we get married, have kids, possibly hit AMT, and tax laws change during the next administration.

    • I boggled my husband’s mind when I told him about the avoiding LTCG part of a DAF! Lol.

      I searched “wash sale donor advised fund” and found this:
      “Note also that wash sale rules do not apply because the securities are donated rather than
      sold and because there are no realized losses involved (the securities are at a gain).”
      But also – why would you transfer assets with a loss to a DAF? You should tax loss harvest those ones and then contribute the cash proceeds to your DAF, but transfer shares with gains directly to a DAF.

      I usually only try to predict tax benefits for the current year since as you say, you don’t really know what the future will hold!

      • Sorry, didn’t actually mean wash sale. Really meant transferring assets with a gain then buying back the same assets (is there a word for that?).

        • Nope, there’s nothing like a wash sale for selling/transferring shares with a gain and then re-buying them. Tax gain harvesting when you’re in low tax brackets is similar to transferring shares with a gain to a DAF and it’s totally legitimate.

        • Huh, I had figured the same step transaction doctrine that applies to wash sale would apply to sales with gains. Learned something new!

          Good post and elucidating convo thread!

        • This is another reason I want to do a DAF in the future– we have some ancient mutual funds that haven’t necessarily done very well compared to the market but because it’s been so long will throw a big capital gain. How big? That’s another thing that needs to go into the equation.

  6. If you’ve got that Schwab checking account it means you’ve also got a brokerage account there too! Which I assume you never use (neither do I).

    Side note: Japan has what I believe is the most valuable coins by denomination: the largest coin is 500 yen (currently about $4.80) and the smallest bill is 1000 yen.

    Thanks for talking about Fidelity and Schwab’s options. I’d only heard of Vanguard’s from JCollinsnh’s post on it.

    • Yup – never use the Schwab brokerage account. One of us had work stuff through Schwab at some point and used their brokerage account for that, which is why they opened up the checking account – to transfer money to Vanguard faster ;)

      Valuable coins get so heavy! And the 500 EUR bill is so huge it doesn’t fit in everyone’s wallets.

      I get why Vanguard is publicized a bit more in the PF world since Vanguard has such great index funds, but its DAF has too high of minimums for us at the moment…

  7. This is awesome! I work in the non-profit sector and have been reading pf blogs for the past few years (mostly Canadian ones). I’m so glad to hear you talk about this – it’s not a topic I’ve seen come up much. Have you thought about concentrating some of your giving with one organization? You might feel more connected to their work and the impact of your donation. You can be clear on not wanting to be solicited for more $ than x amount and if they’re smart, they’ll respect your wishes.

    PS – congrats on all your awesome success. I just found your blog today, and it’s so nice to hear from a strong female PF blogger! I’m normally a quiet blog reader but I was so thrilled to see content on thoughtful giving from a PF perspective, I had to say something. ;)

    • Thanks! I try to not talk about giving too much as it is so personal and if you don’t give, you tend to get flack for it, and if you do, you get flack too for not giving enough or for where you give. My long-term goal is definitely to give larger amounts to individual organizations. I have a list of donations that I make every year and I usually in October take a look at the list, take a look at the amount left in my donations budget and split the amount equally among the organizations. I haven’t added to that list in a while, so the organizations have been getting larger amounts.

      Also thank you for the lovely note about my blog and my success! I’m glad you’ve enjoyed it :)

  8. Curious if it has been your conclusion that $5k is the ongoing minimum to maintain an account as well? So, for example, if I wanted to start a DAF with $5k, but I wanted to donate $1k of that $5k to a charity this year, does it seem like that wouldn’t work?

    I can’t decide if i want to go all out on a DAF or just give some heavy-ish donations this year as the next couple years will presumably be much lower tax brackets.

      • Have you gone through the process yet? I’m curious if I can get the paperwork rolling and contribute later or if I must fund it at the end of the online application process. I’m going to have a chunk of income come in near the very end of the year and I don’t particularly want to contribute $5k at this exact moment in time.

        • Thanks for the info! We were planning on doing it next week. We just wanted to know how much our income for the year would be first.

        • No problem. I’m actually leaning towards Fidelity now as I have a brokerage account there. I mean, I have the Schwab checking/brokerage combo, but no real assets there. I’ll have to find out if Fidelity is going to claw back a sign up bonus if I move some of it to Fidelity Charitable. You wouldn’t think so, but who knows. :-/ I also like that Fidelity has an 18bps “Social Choice Equity” investment option. Schwab’s is over 90bps. Maybe I’m crazy, but it seems kind of cool that something donated to a 501(c)3 would attempt to be invested “responsibly” until it is ultimately distributed –

        • Oh yeah if you have a brokerage at Fidelity, I would definitely go with them. Neither of us have a brokerage at either Fidelity or Schwab. It looks like the tax advantages are only when you transfer shares with long-term capital gains into your DAF – shares with short-term capital gains don’t count.

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