By Dr. Leif Dahleen of Physician on Fire, WCI Network Partner
This timely post will show you how to donate appreciated assets from a Vanguard brokerage account to a donor-advised fund at Vanguard Charitable.
I’ve done this in the past, but recently, Vanguard revamped its Vanguard Charitable website and streamlined the process of donating directly from its taxable account to its donor-advised fund (DAF).
Why would you want to do this?
Giving via a donor-advised fund is easy and efficient. You only need to keep one receipt for the year (when you donate to the DAF), even if you grant to over 100 charities from it, as we have done annually for several years on Giving Tuesday. You take a tax deduction at the time you fund the DAF and donating appreciated assets (thereby eliminating the capital gains) is a cinch.
With my posts on DAFs, I have inspired dozens of readers to start accounts of their own, many of them starting with a six-figure sum.
Step #1: Link Accounts
The first step is to link your Vanguard account with your Vanguard Charitable account. These are separate entities, as Vanguard Charitable is a recognized 501(c)(3) charity.
There’s no need to reinvent the wheel here. I received an email with complete instructions that I followed to link the two accounts. Follow the three-step process and your accounts will be linked.
If you have not yet opened an account with Vanguard Charitable, that would be your first step, and you can do that here. It can be done online in a matter of minutes.
As Vanguard states, this is a one-time job. After the accounts are linked, you’ll be able to quickly and easily move money from your taxable brokerage account to the DAF.
Step #2: Buy & Sell
With linked accounts, navigate to “My Accounts -> Buy & sell.”
Step #3: Contribute to a Charity
On the next screen, select “Contribute to a Charity.”
Step #4: Start Donation to Vanguard Charitable
You’ll be given the option to give directly to a nonprofit organization (assuming the recipient works with Vanguard and can accept assets held by Vanguard) or to contribute to Vanguard Charitable.
Many charitable organizations are not set up to accept stocks, bonds, ETFs, or mutual funds. Using a DAF as an intermediary allows you to indirectly donate the proceeds of your assets directly to any legitimate 501(c)(3) charity. When you grant from your DAF, the recipient will receive an ACH transfer of cash or a check.
Select “START DONATION.”
Step #5: Select Linked DAF Account
If you have multiple Vanguard Charitable accounts, select the one you’d like to receive your donation. With one account, I select mine and click “NEXT.”
Step #6: Select Brokerage Account
I used to have both a mutual fund account (for mutual funds, obviously) and a brokerage account for individual stock(s). That’s where I own Berkshire Hathaway and now Carnival Cruise Lines (for the onboard credit benefit).
Vanguard is retiring the mutual fund account designation and moving everyone into a brokerage account. So now I have two brokerage accounts. I’ll be donating VTSAX from my old mutual fund account, and so I select it.
Step #7: Select Asset Type
As I know ahead of time that I’m donating shares of a mutual fund, I select it. If I were donating ETFs or individual stocks, I’d select the other option.
Step #8: Select Specific Assets
This step requires some work. You need to know which assets you most want to part with. Once donated, it’s not yours and you can’t get it back.
If you have actively managed funds that are tax-inefficient or assets that are suboptimal in your portfolio now, these would be good candidates for donation. You could also do some rebalancing by donating from a class that’s currently overweight.
If you’re happy with the assets you currently own and the proportions in which you own them, donating the most highly-appreciated assets (on a percentage basis) will eliminate the most potential future capital gains. I detailed this process, which included a bit of spreadsheet work, in The Best Way to Donate a Hundred Grand.
I’ve got one lot with less than one share from a dividend reinvestment back in 2014 (I now reinvest manually to avoid issues when tax-loss harvesting), and the rest will come from one large lot purchased in 2016 (when tax-loss harvesting from VFIAX in 2016).
I calculate how many shares I need to donate about $100,000 and enter the information in the boxes on the left.
Step #9: Select a Vanguard Charitable Investment
Vanguard Charitable has a number of low-cost investment options. I invest all of mine in the Total Equity Fund, a stock fund with a 70%/30% mix of U.S. and international stocks.
I enter “100” in the box in the lower right-hand corner to allocate all of the donated VTSAX to this investment option.
Step #10: Review and Submit
If everything looks good and as you intended, go ahead and submit. You will receive a confirmation on the next page and via e-mail.
That’s all there is to it! If you’ve determined what to donate in advance and have your accounts linked, the process will take less than five minutes.
I will note that I take one more step after the transaction has been completed. I grant from my Vanguard DAF to one I have at my preferred DAF, Fidelity Charitable.
I like Fidelity for the more user-friendly website and lower grant minimums ($50 vs. $500). Fidelity Charitable also has a lower minimum donation to start an account ($5,000 vs. $25,000) and investment options with even lower expense ratios than Vanguard.
One downside to this move is that the money is out of the market for about seven business days as the check makes its way from one firm to the other. Here’s what that looks like.
Under “Specific project,” I list the Fidelity Charitable account name and account number, and the balance shows up in my Fidelity Charitable account to be granted as I see fit.
Rather than going through the above process, one could donate Vanguard funds directly to Fidelity Charitable, but I’m guessing it would not be any easier and would more likely involve paper and or a phone call. Everything I’ve done here is accomplished swiftly and easily online.
Also, I do use the Vanguard Charitable account for larger grants, and I don’t mind having the two separate accounts.
I want to take this opportunity to thank the readers of this website for helping to support our charitable mission. Your loyalty is much appreciated, and it allows us to not only donate to and from the DAF, but also support an ongoing permanent medical mission in Honduras.
If you’re looking for a way to lower your taxable income and are feeling generous, a DAF can be a great giving vehicle to use now and for decades to come. I applaud Vanguard for streamlining the donation process.
Do you use a donor-advised fund? How do you choose what to donate to the fund? What benefit of using a DAF do you appreciate the most? Comment below!