Topic 11 · 5 min read
Donor Advised Funds
Deduct this year, give the money away over time.
A donor advised fund is a charitable account at a sponsoring organization. You contribute, take the deduction now, and recommend grants to charities later — this year, next year, or over a decade.
What to know
- Deduction happens at contribution
- The tax benefit lands in the year you fund the account, not when the money reaches a charity.
- Bunching to clear the standard deduction
- Funding several years of giving at once can push you into itemizing in that year while you take the standard deduction in the others.
- Give appreciated assets
- Donating long-held stock avoids capital gains tax and generally deducts full fair market value — the single biggest advantage.
- Tax-free growth inside
- Invested balances grow without tax, so more ultimately reaches charity.
- Advisory, not controlling
- Grants are recommendations the sponsor approves, and the contribution is irrevocable once made.
The tax benefit
A large deduction in a high-income year, capital gains avoided on appreciated donations, and tax-free growth until the money is granted.
Worked example
A bonus year
Someone facing an unusually high-income year contributes $50,000 of appreciated stock, deducts it now, avoids the built-in gain, and grants $10,000 a year to charities for five years.
Watch out for
- You cannot get the money back, or use grants to pay for benefits like gala tickets.
- Deduction limits depend on income and on whether the gift was cash or property.
- Sponsor fees and investment options vary; compare before funding.
Terms from this topic
Donor advised fundBunchingAppreciated propertyFair market value deduction
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