DAF Giving Tutorial from Fidelity and Vanguard Charitable | White Coat Investor (2024)

By Dr. Leif Dahleen, Columnist

[Editor's Note: The following article fromPhysician on FIRE is a practical “how-to” guide to using a Donor Advised Fund (DAF). A DAF can grease the skids of giving, facilitate some unique tax strategies, provide anonymity, and increase convenience. However, when using one remember that despite receiving your tax break upon contribution, you haven't actually helped the charity one bit until you make a distribution. I'll give you 50% credit for donating to the DAF, but in order to get the other 50%, you're going to have to direct the DAF to actually give the money to a charity. That's okay, 50% credit is better than the 10% I'll give you for planning to leave whatever you don't spend during your life to charity. Enjoy the post and expect another one after the start of the year from me. That anonymity aspect is becoming a lot more valuable to me now that my mailbox is filled with “charity p*rn.”]

One of my goals, when I started this site, was to inspire. Inspiration isa lofty goal, but charitable giving is one area where I love to see others follow my lead.

A month ago, I shared the news ofmy gift of $100,000with you, and I am happy to report that several of you were indeed inspired to contribute handsomely to newly foundeddonor-advised funds (DAFs)of your own. Via the comments section and e-mail, I heard from at least five readers who started them, two of whom alsoreported giving$100,000.

Some of those readers were bloggers. Many other bloggers were already on board. This is a list of personal finance bloggers who have started their own DAFs and written about them.

• Wealthy Doc
• JL Collins
• Frugalwoods
• Our Next Life
• DoughRoller
• Investing to Thrive
• Stop Ironing Shirts
• Fetching Financial Freedom
• Need2Save
• ESI Money
• Leigh’s Financial Journey
• Doctor Money Matters
• PT Money
• Retirement Manifesto
• Rogue Dad MD
• Chief Mom Officer

You’ll noticeThe White Coat Investordoes not appear on this list [yet. Stay tuned. -ed] He and I wrotea pro/con piece on the merits of a DAF. I think I won that debate, and he probably disagrees. I’ll let you decide.

Today, I’d like to look at the flip side of DAF giving. So far, I’ve focused on getting money into a DAF and the tax benefits that result from your generosity. Today, I will demonstrate how to share that money by giving from the DAF directly to charitable organizations.

One benefit of DAF giving that is often overlooked is how easy it is to give grants to the charities you wish to support. The fact that you don’t have to keep track of your grants given for tax purposes no matter how often you give or to how many different organizations is a true blessing. A DAF can save a prolific giver a ton of time.

Vanguard Charitable Giving

My first DAF was with T. Rowe Price, but several years ago I made a transition, moving pretty much all of my retirement and donated dollars from T. Rowe Price to Vanguard. The price of admission to get started with Vanguard Charitable is $25,000, and the minimum grant is $500.

[Note: In the following screenshots, our fund names and some charity names have been edited or deleted]

When you login toVanguard Charitable, you will see a summary screen that looks something like this:

Under “Quick links,” you’ll see options to add to your account or subtract from it. I’m here to show youhow to give, so we’ll select “Recommend a grant.” Alternatively, you can choose the same option from the header towards the top of the screen that looks like this:

Next, you will see a screen that includes charities that have benefitted from previous giving. If this is a repeat gift, simply select “One-time grant” next to the charity. To set up a recurrent grant on a schedule, as I’ve done indicated by the 2 arrows forming a circle, you can select “Recurring grant” to assign a dollar amount and frequency.

You’ll notice that Fidelity Charitable is on this list. For reasons that I will detail later, I donated from one DAF to establish another. Both are 501(c)(3) charities, so you are allowed to transfer money between them.

Today’s giving recipient is not on the list, so we’ll choose the green button at the bottom, “Add a new charity”

You’ll have an opportunity to perform a search of over a million charities viaGuidestar. If the search yields a successful result, the information will be imported. If the search is fruitless, you can still donate as long as the recipient is registered as a 501(c)(3) charity. You’ll need the charity’s name, EIN, and address.

In this case, I filled out the form manually, as the Guidestar search did not find the particular charity I was looking for. I contacted the charity to obtain the EIN and official name of the charitable organization, and was good to go.

Once you’ve clicked on Add charity, you will choose the amount to donate and from which allocation. Since all my DAF dollars are invested in the Total Equity fund (55% S&P 500, 15% extended market, 30% international), my donation will come from there.

You can choose when to donate, but I chose “As soon as possible,” so the check should arrive this calendar year. Once you’ve typed enough zeroes — and remember, with Vanguard Charitable, the minimum grant is $500 —click “Next“.

This page is your confirmation, which will be followed up with a letter you receive in the mail from Vanguard Charitable, and likely one from the charity itself. In my experience, the thank you / confirmation from the charity will thank you for your tax deductible contribution and advise you to retain the letter as a receipt.

Note that youcannot deduct your grantsfor a tax deduction. You only get to do that once, and that’s when you donate to the DAF. There is no additional tax benefit to givingfromthe DAF, regardless of what the Thank You letter irresponsibly states. Like a tortilla chip into seven-layer dip, there is no double dipping allowed.

Fidelity Charitable Giving

Last year, I opened my third donor advised fund, but only have two, since I no longer have any money in the T. Rowe Price DAF. Why did I open a Fidelity account? Fidelity Charitable allows you to give as little as $50 at a time, compared to Vanguard’s $500 minimum. The fees in both programs are nearly identical.

Opening the fund using a grant from Vanguard Charitable was simple. While you can start yours with as little as $5,000, you’ll be charged a minimum annual fee of $100 (from the fund’s value), which is a 2% fee when you carry the minimum balance. As mentioned above, you get more bang for your buck with a 0.6% fee at a balance of $16,667 and above.

The giving process with Fidelity is very similar to Vanguard, and is nicely streamlined. A new donation might take five minutes; giving to a previous recipient of your grant can be accomplished in a minute.

When you log in, you will be greeted with your balance, along with options at the top. I came to give, and soI click on “Grant.”

Next, you will see a list of charities which have been on the receiving end of your grants in the past. It’s not nearly as compact as Vanguard’s, but couldn’t be any easier to read. Perhaps Fidelity assumes (or knows) that many of its donors are of an advanced age where cataracts become an issue.

From here, you can fill in dollar amounts and add grants to previous recipients, or click the top button, “Add a new charity,” which is what I did.

After searching forHearts & Hugs, the information was imported to this screen. Note that I opted to make the donation anonymous, an option that Vanguard and presumably every respectable DAF will offer.

At the bottom of the screen was an option toconfirm and submitthe grant.

I did, and received the following confirmation, which will again be followed up with an e-mail, letter, and likely a letter from the recipient.

That’s all there is to it! Both Vanguard and Fidelity make it simple to dish out your donated dollars. Subsequent donations to an organization you’ve supported previously are even easier.

Speaking of support, if you support any of my advertisers or affiliate partners,I donate half of my site profits to charity, largely via my donor advised fund(s). I appreciate your willingness to help me grow this business.

I hopeI can inspirea few more of you to consider giving in the most advantageous way possible. Not only can thetax benefitsbe tremendous, but a DAF can also save you loads of time when you do your year-end giving.

For more information on Donor Advised Funds, see my posts on the topic: