Donor-advised funds are no longer just a secret tax strategy for billionaires; they are one of the most powerful tools we can use to supercharge our charitable giving while significantly lowering our tax bills. We explain how a donor-advised fund works like a retirement account for your generosity—allowing you to donate appreciated stock, skip the capital gains taxes, take an immediate tax deduction during a high-income year, and grant money to your favorite charities over time. Andrew and Liz share the amounts they have put into donor-advised funds and why they opened their accounts after major stock option and deferred compensation payouts. They also share the psychology of separating the tax decision from the giving decision and the key rules and gotchas you need to know before making an irrevocable contribution.
Liz and Andrew join this week’s podcast as we talk about:
– What a donor-advised fund (DAF) is and how the three-step process of contributing, investing for tax-free growth, and granting to 501(c)(3) public charities works
– The double tax advantage of donating old, highly appreciated stock or index funds instead of cash so you can take the full tax write-off while completely avoiding capital gains taxes
– Why high-income years are the ultimate time to pre-fund your future charitable giving
– Transparent real-life numbers from Liz and Andrew on how much they contributed to their accounts
– Using the tax-bunching strategy to group multiple years of charitable contributions into a single tax year so you can exceed the standard deduction threshold
– The psychological magic of making the giving decision once so that sending grants later feels frictionless and splashy
– Comparing Vanguard Charitable versus Fidelity Charitable, including account minimums, administrative fees, and why a $50 minimum grant size matters compared to $500
– How Maggie plans to use a donor-advised fund on January 1st to clean out random leftover Wealthfront funds in her brokerage account and lower her taxable income for ACA healthcare subsidies
– Key rules and gotchas to watch out for, including why contributions are 100% irrevocable, AGI deduction limits, naming successor advisors so your account never becomes orphaned, and why you cannot use DAF money for GoFundMes or gala tickets
Show References:
- Vanguard Charitable
- Fidelity Charitable
- Inside Out Money episode #165 – The 529 Dilemma: How Much Do You Actually Need to Save for College?
- Frugalwoods Blog Post: How We Donate to Charities Like Billionaires
- The Compound – a new Inside Out Money community. Know Better Do Better.
- Liz Gets Loaded podcast 4.18 – Charitable giving hacks: ‘Smart giving’ through Effective Altruism and Donor Advised Funds: what I’ve learned and how it changed how I give
- Inside Out Money episode #177 – The Ultimate FIRE Bridge – The Truth About Deferred Compensation Plans vs. Brokerage Accounts
- Inside Out Money episode #180 – Social Comparison Theory and 7 Ways to Cure Aspirational Fatigue
- Inside Out Money episode #023 – 4 reasons HSAs are awesome and how to maximize the benefits of Health Savings Accounts
- Track your spending and budgeting with Monarch Money: We love Monarch Money and highly recommend it for expense tracking. If you’ve been wanting to try it, click here to get a free 7-day trial AND 50% off your first year (bringing it down to $49.99, or under $5/month) by applying the code SMARTMONEY at checkout. (Clicking our link before using the code ensures we earn a small commission to support the podcast at no extra cost to you!
- Inside Out Money episode #052 – Simplifying our finances – How we’re saving $20K by ditching robo-investing
- Connect with Andrew: @coachandrewknight on Instagram and check out his junior cycling development team, KnT Devo
- Connect with Liz: @lizgetsloaded on Instagram and the Liz Gets Loaded podcast
Follow and connect with Inside Out Money:
- Subscribe to Substack
- YouTube
- Leave us a voicemail or text us: 404-981-3370
- eMail us at: insideoutmoneypod@gmail.com