Over the course of the year, that could be dozens of checks mailed off to different places, a pile of receipts, and if I miss a spreadsheet entry, that’s a deduction I’m not taking. Now, with one large contribution to the DAF each of the last four years, I may never have to keep track of another donation for the rest of my life. When I log in to my DAF, I can donate to twenty different charities with a few quick clicks and keyboard entries. My year-end giving literally takes less than ten minutes, and there’s no need to track any of it for tax purposes since the deduction has already been taken.

A DAF eliminates the need to bunch deductions.

Alternatively, you could say a contribution to a DAF is an effective bunching of deductions.

The White Coat Investor gave two years’ worth of his normal charitable contributions in 2017 and didn’t give enough in 2018 to itemize deductions, taking the standard deduction instead.

That means any smaller donations he made throughout the year in 2018 will not benefit from a tax deduction. In other words, when Dr. Dahle gives up $100 for a school fundraiser, the school receives exactly $100. If he were giving in a tax-advantaged way like a DAF, he could have given closer to $180 at a cost to him of $100.

While it’s true that Vanguard Charitable has a $500 minimum grant, both Fidelity Charitable and Schwab Charitable allow you to grant as little as $50 at a time.

Funding a DAF now makes a ton of sense if you plan to take the standard deduction in the future.

Both Dr. Dahle and I live mortgage-free, and we’ll only be able to deduct up to $10,000 in state and local income tax or property tax.

That leaves a $14,400 gap to reach the $24,400 standard deduction for married couples filing jointly in 2019. If we were to itemize deductions every year, assuming we have no miscellaneous deductions like gambling losses or medical expenses or loss to theft in excess of 10% of our adjusted gross income, the first $14,400 of our donated dollars would not qualify for a tax deduction.

Someone in our situations donating $15,000 a year would only be rewarded with a tax deduction on the final $600 donated, reducing tax burden by less than $300 each year.

A better move would be to contribute $75,000 to a DAF in 2019, taking a deduction of over $60,000, and donating the money over the next five years from the DAF. With decent returns, they might be able to give $15,000 a year for six or seven years.

By doing so, instead of saving maybe $1,200 in taxes over five years, the lump sum contribution would result in about a $24,000 reduction in federal and state income tax owed on the 2019 tax return (assuming a 40% marginal tax rate between federal and state).

Anonymous giving is a cinch with a donor-advised fund.

With each grant from a DAF, you decide how much information is shared with the recipient. You have the option to share full details including name and address, limited info such as the name you assigned to your fund only, or no information at all.

Anonymous giving is an excellent way to stay off the mailing lists of the charities you support, and could actually save the charity the money they would spend on sending you marketing materials.

The psychological benefit of pre-paid donations.

I don’t love parting with money. My relative frugality is a trait that helped me become wealthy, but it can also lead to some miserly Scrooge-like behavior.

By donating to a donor-advised fund, I’ve funded many years' worth of donations. I don’t have to convince myself each year that we can afford to give. I’ve already made that determination and parted with the money.

Now, when I donate, it’s like I’m playing with house money. Donations from my DAF don’t affect my net worth or personal financial future. As Dr. Dahle pointed out, I get to pat myself on the back twice. But only one of those back-pats costs me any money.

Closing Arguments

While it’s true that many of the benefits of giving to a donor-advised fund can also be realized by direct charitable giving, there are some unique benefits to using a DAF.

  • “Donation smoothing” or the ability to give every year with no concern about exceeding the standard deduction.
  • Simplified giving. In 2017, we made 28 grants to 25 recipients. The DAF keeps track of those recipients and I can give to them again by checking the box next to its name and adding a dollar amount. It’s much easier, faster, and none of it needs to be reported on Schedule A of your 1040. In 2018, we donated to well over 100 charities, with 100 of those grants arising from a single blog post.
  • Anonymous giving. While this can be accomplished outside of a donor-advised fund, within the DAF, it literally requires one mouse click.
  • Psychological benefits. People with DAFs give more generously than others.
  • Tax arbitrage. A DAF allows you to donate at your current marginal tax bracket, which could drop in the future. Mine dropped when I started working part-time. It will drop again with the Tax Cuts and Jobs Act (from 33% to 24%) and will drop again when I retire and no longer have an income. But every donated dollar will have benefitted from a healthy tax deduction in a high marginal tax bracket.


That last point deserves a little more attention. It can be seen as greedy, but that’s not at all how I view it.

When you get the most bang for your buck by taking a larger deduction, the ultimate benefit goes to the charities you choose. If you decide you’d like to give $1,000 of your money and you’re in the 12% tax bracket, you can donate $1,136 at a cost of $1,000 to you after the $136 you get back on your taxes.

If you decide you’d like to give $1,000 of your money and you’re in the 39.6% tax bracket, you can donate $1,655 at a cost of $1,000 to you after the $655 you get back on your taxes.

These examples assume you have itemized deductions that exceed the standard deduction, which is nearly doubling in 2018. If you don’t have enough deductions to itemize, some or all of your donated dollars will only result in an equal value to charity.

Why would you not attempt to maximize the “government match” with every dollar you choose to give?

As I said above, there is still time to start a Donor-Advised Fund in 2019.


What do you think? Is keeping money in a DAF a “jerk move”? Does a donor-advised fund make sense for you? Have you opened one recently, or have plans to do so?