As of 2022, there were 1.9 million Donor advised fund accounts holding a total of $228.89 billion in assets.
This represents a 2.9% increase from the number of donor advised fund accounts in 20213. In 2021, Americans donated a total of $484.5 billion to charity1 and $72.67 billion of that was contributed to Donor Advised Funds2. These accounts are established at public charities such as Schwab Charitable, Fidelity Charitable, National Philanthropic Trust and more. Taxpayers are able to donate assets such as cash, stock, and real estate and claim an immediate tax deduction. Once the assets have entered the account, they are invested which allows them to benefit from continued potential growth until they are distributed to a charity of your choice. As the owner of the account, you have the discretion of deciding which charities you would like to receive the funds, when the distributions are made, and how much is distributed. Donor Advised Funds are most useful for individuals that intend to use a tax planning strategy referred to as “bunching”. Bunching is when you concentrate or “bunch” certain deductible expenses into specific tax years in order to maximize their impact. This allows you to be thoughtful and strategic with your charitable dollars and maximize the tax benefit they are providing you. While Donor Advised Funds offer a high level of flexibility, it is important to note that grants made from a Donor Advised Fund cannot be used to fulfill a pledge made on your behalf to a charitable organization. In the same way that a beneficiary is named on an investment account, a successor can be named for a Donor Advised Fund so that in the event that the original owner passes away, the successor is able to distribute any funds that remain in the account.
A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an Individual Retirement Account (IRA) to a qualified charity.
By making this direct transfer, you can avoid having to pick up the distribution amount in your Adjusted Gross Income (AGI). Your AGI is used to determine different items such as IRA contribution eligibility, net investment income tax, eligibility for tax credits, and the amount you are required to pay in Medicare premiums. Regardless of your required minimum distribution (RMD) age, you can begin making QCDs at age 70 ½. Each individual is able to donate up to $100,000 a year in the form of QCDs, making it possible for a married couple to do a combined total of $200,000 a year. QCDs are especially popular when individuals reach the age where they are required to take minimum distributions from their tax-deferred accounts. QCDs allow individuals to reduce their RMDs by the amount directly transferred to charity. However, if you donate more than your than your RMD amount in any given year, it will not reduce the amount of your future RMDs. QCDs cannot be made to donor-advised funds, private foundations, or supporting organizations, and are not counted as an itemized deduction on Schedule A of your tax return. Lastly, it is important to note that your QCD will not be shown on the 1099-R you receive at the end of the year. Therefore, it is crucial that you make your tax advisor aware of the organization you directed the QCD to, as well as the amount of the donation.
When deciding on the best method to use for charitable giving, Howe & Rusling’s Team of advisors can help ensure that your decision will ultimately be the most beneficial for your particular circumstances. Reach out to one of our advisors to start the conversation today!
Disclosures: This content is provided for informational purposes only and should not be construed as investment advice, an offer to sell, or the solicitation of an offer to buy any security or investment product. All investments carry risks, including the risk of loss. Past performance is not indicative of future results. The strategies discussed may not be suitable for all investors and do not guarantee any specific outcome or profit. The information provided herein is based on current tax laws, which are subject to change. You should consult with a qualified tax professional before making any investment or charitable giving decisions to determine the potential tax consequences specific to your situation. Donor-Advised Funds (DAFs) are offered by sponsoring organizations and are subject to their rules and regulations. The examples and figures cited in this communication are based on information available as of the date of publication and are subject to change. QCDs are subject to specific IRS rules and regulations. Not all IRAs are eligible for QCDs, and not all charities qualify to receive QCDs. It is important to verify eligibility with your IRA custodian and the charity. Certain information in this piece is based on data obtained from third-party sources that are believed to be reliable, but Howe & Rusling does not guarantee its accuracy, completeness, or timeliness. The statistics mentioned (e.g., number of DAF accounts, total assets held, total charitable contributions) are as of the dates indicated and may have changed. Mention of specific organizations such as Schwab Charitable, Fidelity Charitable, and National Philanthropic Trust does not imply endorsement or recommendation by Howe & Rusling. These organizations are cited for illustrative purposes only. The strategies and examples discussed are for illustrative purposes and may not reflect the specific needs and circumstances of any individual investor. Howe & Rusling offers personalized advice only after an analysis of your individual circumstances and objectives. Before making any decision regarding your investments or charitable giving strategies, you are encouraged to consult with your financial advisor, tax professional, or legal counsel.
