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 1. Home
 2. Personal Finance
 3. Charity


COULD DONOR-ADVISED FUNDS SOON BE AS POPULAR AS 401(K)S?

Interest in this charitable giving tool is growing as it offers simplicity and
tax benefits similar to 401(k)s.

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(Image credit: Getty Images)

By Stephen Kump
published August 26, 2022

As the economy continues to ebb and flow in a post-COVID world, consumers are
looking for straightforward financial wins, but often they aren’t sure what
moves to make or what tools to use. Most Americans are aware of 401(k)s, even
though 40% of Americans (opens in new tab) do not fully understand the fees and
the rules surrounding them.



Which Type of Donor-Advised Fund Is Right for You?

Like 401(k)s, there is another type of account that can bring financial benefits
to a large number of Americans and is rapidly growing in popularity. It’s called
a donor-advised fund (DAF), which is a tax-deductible financial account for
charitable giving.


WHAT A DONOR-ADVISED FUND CAN DO FOR YOU



A reader might be asking, “How could that be beneficial to me?” Just like a
401(k) makes retirement simpler, a DAF simplifies giving while providing
powerful tax advantages and investing options. Here are three consumer benefits
donor-advised funds offer:


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 * First, donor-advised funds give consumers one place for all their giving (on
   one consolidated tax receipt), like a checking account but for philanthropy.
 * Second, consumers can easily donate stock, cryptocurrency or other assets
   into their account and avoid capital gains tax while distributing proceeds to
   any charity.
 * Third, because dollars are eligible for tax advantages the moment they hit
   the account rather than when they are sent to charities, donors can take the
   time they need to discover high-impact charitable opportunities without
   worrying about tax implications. Most DAFs allow the money to be invested
   while it is in the account, and it can grow tax free.

All of this allows for greater opportunity to be smart about your giving.

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More than the financial smarts, DAFs help you give more purposefully, which can
help you live a richer life. The act of giving is associated with many aspects
of psychological and relational well-being, and this type of account enables
greater flexibility for donors to participate in giving, even if a donor isn’t
sure yet what cause to support.



Are You Rich? The Answer May Surprise You

Corporate donors are also catching on. DAFs are increasingly being used to
support workplace giving programs as an alternative to federated funds (e.g. the
United Way) and corporate foundations.


HOW DAFS HAVE IMPROVED RECENTLY

In recent years, donor-advised funds have become more straightforward to create
and use. Many sponsors now offer low-fee exchange-traded funds (ETFs) as
investing options, and because of increases in technology, administrative fees
and minimums to open have come down. Additionally, they don’t require sensitive
information like Social Security numbers to set up, and each sponsor ensures
each charity is in good standing with the IRS. Startups in the space, such as
Charityvest (opens in new tab), are accelerating this movement to make DAFs more
delightful and to lower fees.

It’s no surprise DAFs are growing quickly. In one year alone, from 2019 to 2020,
the number of DAF accounts jumped 16.3% (opens in new tab) to more than 1
million.

At Charityvest, we’ve witnessed success firsthand through our growth over the
past three years. We started Charityvest because we wanted to make giving more
purposeful, allowing for better planning in how and where people give. Users can
make tax-deductible contributions of cash, stock, complex assets or
cryptocurrency into their fund, and then direct those funds to over 1.4 million
nonprofits in the U.S., while keeping their giving on a single consolidated tax
receipt. With the introduction of low-fee ETF portfolios earlier this year,
users can invest their fund balance to grow their giving, with all-in fees
25%-50% lower than the leading providers in the DAF space. Simply, the idea was
to make giving easier, and more purposeful, and we believe DAFs do that.

The industry is experiencing remarkable growth as individuals and institutions
increasingly see DAFs as their preferred way to give and facilitate giving. The
opportunity to become more purposeful and streamline giving is a powerful
combination. Technology and innovation are pushing these accounts to more
people, making tax-smart, easy, thoughtful giving available to everyone who
wants to donate to charities, in the same way the 401(k) did for retirement.

Charitable Trade-offs Between Donor-Advised Funds and Private Foundations

This article was written by and presents the views of our contributing adviser,
not the Kiplinger editorial staff. You can check adviser records with the SEC or
with FINRA.


Explore More
Building Wealth
Stephen Kump

Co-Founder & CEO, Charityvest

Stephen Kump is CEO of Charityvest (opens in new tab), a modern donor-advised
fund (DAF) technology company making purposeful generosity more accessible and
frictionless for all. Prior to Charityvest, Stephen worked for over 10 years as
a consultant to nonprofit organizations, philanthropists, corporate leaders and
private equity investors, most recently with Bain & Company. He is a former U.S.
Army cavalry officer and holds an MBA from the Yale School of Management.


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