Donate Now, Give Later

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Baby boomers who are in the final decade of their high-income years might want to stop using their credit cards and checkbook to give to charity. There’s a better way to be generous and reduce your taxes at the same time—the donor-advised fund (DAF).

How a Donor-Advised Fund Works

You move cash or assets to your DAF and get the same tax benefits as if you sent the assets directly to the charity (a deduction for the contribution and the avoidance of capital gains tax on the unrealized appreciation). But, with a DAF, the years in which your charities receive your donations can be different from the years in which you receive your tax deductions. Once your assets are in the DAF, you have discretion as to the timing and amounts you give to charity, as well as how the assets are managed within the DAF.

Three Slam-Dunk DAF Strategies


Final Years of Primary Career

Why not pre-fund some of your post-career charitable gifting while your tax bracket is high and you can enjoy a larger tax deduction? Say you’re age 55 and aiming to end your current career by age 60. In those last five big-income years, you make tax-deductible contributions with the lowest cost basis assets to the DAF and allow that money to continue being invested until your 60s. You could easily build up the DAF enough to cover a decade or more of post-career charitable giving.

Volatile Income

Anyone in the entertainment industry will tell you that it’s $1 million this year and who-the-heck-knows next year. Commission-oriented professionals also understand the dilemma of unpredictable income. But if charitable giving is going to be a part of your life, you might as well make your contributions to a DAF when it can reduce your taxes the most (when you’re in a high tax bracket). This means you can also be generous in those low-income years when it would otherwise feel unaffordable.

Portfolio Makeover

When you give your portfolio a makeover in order to better diversify and lower your hidden costs, you may end up paying some capital gains taxes as a result—the perfect time to explore a DAF. You simply identify assets with the largest unrealized gains and move your desired amount to the DAF. What a great way to take some winnings off the table, diversify and get a tax benefit, all in one fell swoop!

Happy giving and tax saving.

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