A donor-advised fund (DAF) acts like a personal charitable investment account, enabling individuals to make donations, receive tax benefits immediately, and decide later which qualified charities to support. Setting up a DAF involves opening an account with a sponsoring public charity—such as Fidelity Charitable, Schwab Charitable, or a community foundation—and contributing assets like cash, appreciated securities, or even more complex items such as real estate or cryptocurrency.
When you fund a DAF, your contribution becomes irrevocable and qualifies for an immediate tax deduction in the year you give. The DAF allows your assets to be invested and grow tax-free within various investment options, potentially increasing the amount you can grant to charities over time. You then recommend grants to IRS-qualified 501(c)(3) organizations at your convenience through the sponsoring organization’s online portal.
Key benefits include significant tax advantages, especially when donating appreciated securities, simplified record-keeping since you receive a single receipt for all contributions, and the flexibility to spread your charitable giving over multiple years—all while maintaining control and privacy of your philanthropy.
To open a DAF, first research sponsoring organizations by comparing fees, available investment choices, minimum contribution requirements, and grant policies. After completing an application and funding the account, you select an investment strategy appropriate for your risk tolerance and charitable goals.
With your funds invested, you can recommend grants whenever you wish. The sponsoring organization vets the recipient charities to ensure IRS compliance and processes the grant, delivering funds directly while protecting your legal interests.
Donor-advised funds appeal most to individuals who want to donate appreciated assets tax-efficiently, consolidate charitable giving records, establish a multi-year philanthropic plan, or involve family members in charitable decision-making. Common strategies include “batching” multiple years of donations into one tax year to exceed standard deduction thresholds and long-term giving plans maintained through successor advisors.
Despite their advantages, DAFs differ from private foundations primarily in ease of administration and lower costs. Remember, funds contributed to a DAF cannot be reclaimed, and it’s important to stay active in recommending grants to avoid unused balances.
For more on philanthropic strategies and qualified charities, explore our Philanthropic Planning and Qualified Charitable Organization glossaries, which provide broader context on charitable giving.
Sources and further reading include the IRS official guide on Donor-Advised Funds and expert insights from Fidelity Charitable. These resources offer authoritative details on tax rules, contribution limits, and operational guidelines for DAFs.