How Donor-Advised Funds Fit into Your Investment Portfolio

Investment Planning with Donor-Advised Funds
When discussing tax and/or investment planning with your financial advisor, don’t forget to explore charitable tax deductions with donor-advised funds.

In between board meetings, business travel and spending time with your kids, you may not have much time to mull over your investment portfolio.

However, even if your investment portfolio is diversified, you may be overlooking an advantageous philanthropic investment vehicle that is growing in popularity.

Most diversified portfolios include low-risk assets, like certificates of deposits (CDs) or bonds, mixed with vehicles that carry a greater risk, such as stocks, options and futures. Other well-known investment vehicles include annuities, mutual funds and real estate, or emerging investment opportunities like cryptocurrency.

But have you taken the opportunity to discuss donor-advised funds with your financial advisor?

Investing Charitably

Just like other investment vehicles, your donor-advised fund provides an opportunity to invest and grow your money over time. With these philanthropic vehicles, however, your goal is to grow your charitable funds for greater philanthropic impact.

At The San Diego Foundation, for example, we build investment strategies that increase the impact of your gift and create sustainable growth. Depending on the type of fund you set up, your assets are invested to maximize your return and strengthen your grantmaking and social good power.

A donor-advised fund is a type of account, like an IRA or brokerage account, that can hold all kinds of investments.

It’s a philanthropic giving vehicle administered by a charitable sponsor, most commonly a community foundation (like The San Diego Foundation) or commercial institution. Individuals, or donors, establish donor-advised funds with a charitable sponsor, fund the account with an irrevocable, tax-deductible contribution and receive an immediate tax deduction.

The charitable sponsor invests the funds, and donors then recommend grants from those funds gradually, over time, to charitable organizations, sometimes through multi-generational collaboration.

Ultimately, it’s up to you to decide when and how often to grant funds from your donor-advised fund (DAF) to charitable organizations you support.

“A donor-advised fund can be a great tool for investors who want the tax-free growth and long-term impact of a private foundation without the costs and management headaches,” said Rick Brooks, CFA®, CFP®, director and chief investment officer with Blankinship & Foster, LLC.

“Like a foundation, contributions to a DAF are immediately tax deductible. Donors can then decide how to grant the funds over time at their own pace. As with your IRA or Trust investments, the hope is that donated funds grow over time, allowing donors to really maximize their charitable gifts.”

Tax Advantages

You can contribute a large lump sum of assets to donor-advised funds and receive an immediate tax deduction the year in which you established the fund.

Donor-advised fund tax deductions include up to 60 percent of adjusted gross income (AGI) for gifts of cash and up to 30 percent of AGI for gifts of appreciated securities, mutual funds, real estate and other assets.

In addition to cash, you can receive a tax deduction for donating the following assets, among others:

  • Stock (public and private/restricted), bonds and mutual funds
  • Partnership interests and pre-IPO shares
  • Real Estate

By donating appreciated stock, you can avoid or reduce capital gains or income taxes on contributions to donor-advised funds.

Learn More about Donor-Advised Funds

When discussing tax and/or investment planning with your financial advisor, don’t forget to explore charitable tax deductions with donor-advised funds.

They not only support local nonprofits, they also help you optimize tax benefits and provide an investment vehicle for your charitable funds to grow over time.

To learn more about the benefits of donor-advised funds, contact our Development & Stewardship Team today.

Contact our Development & Stewardship Team today!

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