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  • Writer's pictureDrew Schneider

Is a Donor Advised Fund right for me?

DAFs are a powerful tool for more engaged & impactful philanthropy. Learn how they work, who they are for and where to get started if you want to open a DAF account.

Please note: Chariot is not a financial advisor, and any individual’s financial decision should be made in consultation with their financial advisors, accountants and/or legal counsel. The following information is meant to serve as general background information on how Donor Advised Funds function, but every person’s financial situation is different and should be assessed individually.



A Donor Advised Fund (DAF) is a tax-advantaged savings account for charitable giving - similar to a 401k for retirement funds or an HSA for healthcare expenses. You can contribute to your DAF account any time, invest the balance to keep it growing, and grant out money to nonprofits over time.


 

The key benefits to DAFs are:


Tax Advantages


When you contribute to your DAF, you generate a tax write-off for the full contribution amount upfront, then you can make grants to individual nonprofits over time. This is even more powerful if you contribute appreciated assets to your DAF, allowing you to forgo any associated capital gains tax on those assets. Any investments you make with the balance in your account will also grow tax free.




Hitting Goals


DAFs help people be more intentional with their philanthropy. It’s easy to set goals, make automatic contributions and track your progress for both your contributions into your account and your grants out of your account.




“I committed to donating 10% of my income to charity every year and DAFs are what made it possible."




Follow Chariot's CEO, Salomon Serfati, on LinkedIn here.



Staying Organized


DAFs provide a central place to manage all your charitable giving and more easily execute on any philanthropic strategy. This makes it incredibly easy to incorporate your giving into your annual tax filings and assess the impact of your aggregate giving over time.


"With my donor advised fund, I've found a sweet spot in giving. It's like having a savvy sidekick for my charity work - simple to manage, yet super effective. It cuts through the chaos, letting me focus on what really matters: making a real impact."


Maintaining Flexibility


DAF account holders have discretion on where and when they grant out the money from their account. In general, the only restriction is that grants must be made to 501(c)3 nonprofit organizations in good standing with the IRS. There is also no time restriction on when grants need to be made out of your account, so you can plan for your long term strategy.


Much like a 401k or HSA, DAF balances can also be invested, so your account can grow and increase your future giving capacity.




"DAFs are incredibly easy and flexible tool. You can really use them for anything."




Hear lead philanthropic advisor, Dan Greenspon’s, best advice on DAFs here.



Reducing Administrative Burden


For many people, DAFs serve as a much simpler alternative to a private foundation. Setting up and running a private foundation involves significant upfront cost and ongoing work to administer. This includes audits, annual filings, board meetings, etc. - all of which are fully handled by the DAF provider you choose. The DAF provider also diligences the organizations you select for your grants to ensure they qualify for tax-deductible gifts.



Increasing Accessibility


There’s been a proliferation of DAF providers (over 1,100 now in the US) which has resulted in much lower barriers for people to set up and use DAFs. Lower minimum account sizes, mobile first platforms and reduced fees means that truly anyone can use a DAF today to be more intentional, organized and tax-smart with their giving.



Growing Popularity


If you’re interested in starting a DAF you’re in good company! DAFs are the fastest growing vehicle in philanthropy, with $50 Billion granted to nonprofits from DAFs last year, a 40% annual increase. There are over 2 million people using DAFs, which currently hold over $229 billion in total assets.


 

The top considerations when opening a DAF are:



Reviewing the fees & terms of your DAF provider closely


Every DAF provider has slightly different fees and terms. There’s a variety of contribution or grant minimums, administrative or investment fees, and permitted investment options. Review these in detail when selecting a DAF provider to make sure it is the right fit for you and your philanthropic goals.



Understanding that funds in a DAF have to be used for tax-deductible charitable donations


Once you have contributed to a DAF, there is no way to take money out of the account for anything other than grants to 501(c)3 charities in good standing with the IRS. DAF holders are not permitted to receive any benefit from the grants made from their DAF, meaning they can’t be used for things like event tickets or auction items since that type of donation is not tax deductible.



Picking the right DAF provider- there’s a DAF for anyone


DAF providers generally fall into 4 categories.


  1. DAF-specific platforms

    1. These providers were created primarily for DAFs and have invested in mobile-first, user friendly platforms. Daffy and Charityvest are both partners of Chariot that we can recommend.

  2. Community Foundations

    1. Hundreds of community foundations around the country manage DAFs. Many people like this option to keep their funds “local” and appreciate the engagement with their community.

  3. Financial Institutions

    1. The largest DAFs are managed by major financial institutions like Fidelity, Vanguard, Schwab, etc. People choose these options to keep their DAF bundled with the rest of their personal finances.

  4. Cause-Specific DAFs

    1. There are also many organizations that manage DAFs either for one specific charity or as an umbrella over a general cause area. These options are good for people who want to concentrate their DAF giving or align their DAF accounts with a mission that’s important to them. The Jewish Communal Fund (JCF) is one of the largest in the country that Chariot also partners with.


If you want to do a deeper exploration of potential DAFs on the market, we can also recommend the website donoradvisedfunds.com for more research.



DAFs are becoming more even more widely usable thanks to Chariot


Historically, DAF gifts could only be made from your account at your DAF provider. That meant that you couldn’t use them on a nonprofit’s website, on a campaign page for a family member’s bike ride, etc. Once you submitted grants from your account, the nonprofit wouldn’t know until a check arrived in the mail weeks later and usually had a real processing nightmare each time.


Chariot built the first DAF payment option that lets you use your DAF in 3 clicks within any donation form or fundraising platform. That means in all those instances you might have just given with a credit card because it was easier, you can use the money you’ve already set aside for giving - and it’s even faster than a credit card!



You can try it out yourself here in our interactive demo or watch this quick video demo to see Chariot in action.


Be sure to encourage any nonprofits you support to also check out Chariot so they can maximize their DAF fundraising. They can sign up for your own demo here.


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