What is a Donor Advised Fund?
A donor advised fund is simply a special kind of fund account sponsored by a public charity, like Catholic Foundation of Southwest Iowa. The charitable affiliates of many investment firms and community foundations are the most common DAF sponsors. The terms of the donor advised fund (DAF) make the donor, or sometimes others, an advisor to the public charity. The donor advisor has the privilege of “advising” grants from their DAF to the charities they support.
How does it work?
You contribute cash, stock, or other assets to the DAF sponsor to be deposited in your named DAF account. You receive an immediate income tax charitable deduction for your contribution to your DAF. As the DAF donor, you choose how to invest and manage the fund. As the advisor for your DAF, you “advise” grants to qualified charities in amounts and times you choose. Read your DAF agreements carefully so that you best understand how it benefits you and your family.
What are the tax advantages?
A key advantage of a DAF is the opportunity to separate the timing of your tax-deductible contribution from your decisions about which specific charities you wish to support. This can be especially useful for tax planning. For example, if you have a financial event like the sale of a business that results in a larger than usual tax liability, you could make a substantial charitable contribution to a DAF and use the income tax deduction to reduce your taxes. Or, if like many taxpayers in recent years, you find yourself unable to itemize your deductions each and every year, you might “bunch” your contributions and other income tax deductions into those years so your total deductions allow you to itemize and then make contributions from your DAF over the years when you do not itemize.
Is a DAF right for you?
In addition to the tax advantages, a DAF can help organize your giving each year. Some donors use their DAF as an opportunity to engage their family members in decisions about which charities to support, creating a family foundation of sorts.
How do I start my DAF?
Community foundations, some religious organizations, like CFSWIA, and certain colleges and universities sponsor donor advised funds. In addition, several investment and financial services firms have donor advised fund offerings. Be sure to check account minimums, allowable distributions, and other details to select a DAF sponsor and agreement that works best for you.
Can I support CFSWIA or my favorite Diocese of Des Moines group with my DAF?
Absolutely! Just request a grant from your DAF to a Catholic Foundation of Southwest Iowa agency or endowed fund or to your favorite Diocese of Des Moines group. If you hold a DAF with a different sponsor, you may request the same there. Although you won’t get a tax receipt – remember, you already got a deduction when you made your contribution to your DAF – we will recognize you for your contribution and make certain that it ends up where it was requested.