By: Katherine Hennessy, CFP®
When investors are weathering market volatility, high inflation, and rising interest rates it can be challenging to look out and continue supporting non-profit organizations. If your retirement plans have not changed, it’s important to keep a long-term perspective – stay the course, keep saving for your long-term goals, and keep donating to charities. While there are many ways to give, the donor advised fund is one of the most efficient and tax-advantageous ways to give to a charity. A donor-advised fund is an investment account created to support charitable organizations. Once a contribution is made, you are eligible for an immediate tax deduction.
There are three simple steps to open and gift to a donor-advised fund before year-end:
- GIVE. Open a donor-advised fund at your financial institution. Many financial institutions offer donor-advised funds including Fidelity Charitable, Schwab Charitable and Vanguard Charitable. Once you’ve opened your fund, either donate long-term appreciated assets to minimize your capital gains taxes or make a single donation in cash, both types of gifts allow you to support multiple causes over time. The amount you give in any given year to the donor-advised fund is your charitable contribution for that year. If your income is unusually high this year, consider charitable bunching to your donor-advised fund. Charitable bunching allows taxpayers to “bunch” contributions in specific years, while limiting donations in other years. This can allow you to offset your higher income.
- GROW. If making a cash contribution to your donor-advised fund, consider investing in an asset allocation pool within your fund. Many financial institutions allow you to invest in asset allocation pools which have a combination of stocks, bonds, and short-term investments. Your contribution can grow tax-free and allow you to grant more dollars to charities in the future.
- GRANT. Grants to your favorite charities can be made on-line through your donor-advised fund. This allows for simple recordkeeping and is much easier than writing a check and mailing it. While most of us make our grants at year-end, many charities need our support before year-end.
A donor-advised fund provides an easy and tax-advantageous way to give to your favorite charities. Donating through a fund makes it much easier to keep track of your gifting records online through your financial institution rather than trying to find and keep the acknowledgement letters from charities. Contact us if you are interested in setting up a donor-advised fund so that we can help you simplify your gifting strategy.