Latest news with #DAFs
Yahoo
6 days ago
- Business
- Yahoo
One of the most attractive — and sometimes secretive — ways the wealthy donate money could soon get even more popular
A provision in Trump's tax bill could make donor-advised funds an even more popular form of giving. DAFs are especially attractive to the ultrawealthy because of big tax advantages. Some experts told BI they're seeing DAF donations among the wealthy change in the post-Trump era. As President Donald Trump's "big beautiful bill" moves through Congress, a provision hiking taxes on private foundations could make another form of philanthropy even more attractive: donor-advised funds. Donor-advised funds, or DAFs, are accounts where donors can contribute funds, immediately get a tax deduction, and "advise" on where to donate — and they are becoming increasingly popular. As Daniel Heist, a professor at Brigham Young University and a lead researcher on the 2025 National Survey of DAF Donors, put it, "they're growing like crazy." Donors can contribute non-cash assets, like appreciated securities or crypto, to DAFs, and the funds grow over time. BI spoke with academics, DAF sponsors, and nonprofits about why major donors use DAFs, how the tax bill and Trump are changing the calculus, and the risks of the "opaque" form of philanthropy. Sponsoring organizations, which are themselves public charities, operate DAFs. Some of the largest are connected to investment firms like Fidelity, Vanguard, and Schwab, though others include community foundations or religious organizations. Technically, donors don't control the funds in their DAF, but practically speaking, they can direct the money to any accredited charity. "As long as you're following the rules of the DAF provider, you should always have those recommendations honored," Mitch Stein, the head of strategy at Chariot, a technology company focused on DAFs, said. Private foundations have to distribute at least 5% of their assets annually for charitable purposes, but DAFs don't have payout requirements. Donors also don't report their gifts to individual organizations on their taxes, and instead report that they gave to the DAF. If Trump's fiscal agenda passes in the Senate (it has already passed in the House of Representatives), it would raise the current 1.39% tax on private foundations' investment incomes. The rate would rise to 10% on foundations worth $5 billion or more, to 5% for those worth between $250 and $5 billion, and to 2.8% for those worth between $50 million and $250 million. It wouldn't change for foundations worth less than $50 million. "There already was a substantial amount of momentum toward donor-advised funds, and a bill like this would only magnify that," Brian Mittendorf, a professor at Ohio State University who has studied DAFs, told BI. Though people across net worths use DAFs — Heist called them a common "mid-range philanthropic tool" — they're particularly attractive to the rich. The 2025 survey of DAF donors found that of 2,100 respondents, who were surveyed between July to September 2024, 96% had a net worth of more than $1 million. "I definitely see a trend away from private foundations," Heist said. Rebecca Moffett, the president of Vanguard Charitable, a prominent DAF provider, said she's seeing the same pattern. The main draw has to do with taxes, according to data and the experts. In the 2025 survey, 62% of donors said tax advantages were a strong motivation for opening a DAF account. Jeffrey Correa, Senior Director of US philanthropy at the International Rescue Committee, told BI that there's been an "explosion" of major donors giving through DAFs. The ability to contribute non-cash assets is also a big factor. Donating appreciated assets lets the donor avoid paying capital gains taxes (in the 2025 survey, 51% of respondents said reducing capital gains taxes was a big consideration). Convenience is another benefit, experts said, since DAFs are more streamlined and cheap than private foundations. Then there's the question of privacy, beyond how DAF donations show up on tax filings. Donors can choose varying levels of anonymity when donating to recipient nonprofits. Only 4% of donors in the 2025 survey opted to be totally anonymous to the recipient organizations, most commonly to avoid public recognition or solicitation. Just 24% said they wanted to avoid scrutiny. Generally, the experts BI spoke with said they don't see confidentiality as the primary appeal of DAFs. Moffett and Correa said they haven't seen more major donors opt for anonymity or express concerns about confidentiality. Most of those BI spoke to were enthusiastic about DAFs, but some flagged risks. Mittendorf and Helen Flannery, an associate fellow at the Institute for Policy Studies, found through a study that DAFs distribute grants to politically engaged organizations 1.7 times more than other funders. "They can be great conduits for dark money because they're completely opaque," Flannery said, adding that the public doesn't always know where donors' DAF funds go. Risks aside, the wealthy seem as interested as ever in using DAFs — and in turn slowly eroding the private foundations that once defined the philanthropic world. Have a tip or something to share about your giving? Contact this reporter via email at atecotzky@ or Signal at alicetecotzky.05. Use a personal email address and a nonwork device; here's our guide to sharing information securely. Read the original article on Business Insider Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Business Insider
7 days ago
- Business
- Business Insider
One of the most attractive — and sometimes secretive — ways the wealthy donate money could soon get even more popular
As President Donald Trump's"big beautiful bill" moves through Congress, a provision hiking taxes on private foundations could make another form of philanthropy even more attractive: donor-advised funds. Donor-advised funds, or DAFs, are accounts where donors can contribute funds, immediately get a tax deduction, and "advise" on where to donate — and they are becoming increasingly popular. As Daniel Heist, a professor at Brigham Young University and a lead researcher on the 2025 National Survey of DAF Donors, put it, "they're growing like crazy." Donors can contribute non-cash assets, like appreciated securities or crypto, to DAFs, and the funds grow over time. BI spoke with academics, DAF sponsors, and nonprofits about why major donors use DAFs, how the tax bill and Trump are changing the calculus, and the risks of the "opaque" form of philanthropy. DAFs have a few key differences compared to private foundations Sponsoring organizations, which are themselves public charities, operate DAFs. Some of the largest are connected to investment firms like Fidelity, Vanguard, and Schwab, though others include community foundations or religious organizations. Technically, donors don't control the funds in their DAF, but practically speaking, they can direct the money to any accredited charity. "As long as you're following the rules of the DAF provider, you should always have those recommendations honored," Mitch Stein, the head of strategy at Chariot, a technology company focused on DAFs, said. Private foundations have to distribute at least 5% of their assets annually for charitable purposes, but DAFs don't have payout requirements. Donors also don't report their gifts to individual organizations on their taxes, and instead report that they gave to the DAF. Republicans' tax bill hits private foundations If Trump's fiscal agenda passes in the Senate (it has already passed in the House of Representatives), it would raise the current 1.39% tax on private foundations' investment incomes. The rate would rise to 10% on foundations worth $5 billion or more, to 5% for those worth between $250 and $5 billion, and to 2.8% for those worth between $50 million and $250 million. It wouldn't change for foundations worth less than $50 million. Please help BI improve our Business, Tech, and Innovation coverage by sharing a bit about your role — it will help us tailor content that matters most to people like you. What is your job title? (1 of 2) Entry level position Project manager Management Senior management Executive management Student Self-employed Retired Other Continue By providing this information, you agree that Business Insider may use this data to improve your site experience and for targeted advertising. By continuing you agree that you accept the Terms of Service and Privacy Policy . "There already was a substantial amount of momentum toward donor-advised funds, and a bill like this would only magnify that," Brian Mittendorf, a professor at Ohio State University who has studied DAFs, told BI. DAFs are especially helpful for the ultrawealthy Though people across net worths use DAFs — Heist called them a common "mid-range philanthropic tool" — they're particularly attractive to the rich. The 2025 survey of DAF donors found that of 2,100 respondents, who were surveyed between July to September 2024, 96% had a net worth of more than $1 million. "I definitely see a trend away from private foundations," Heist said. Rebecca Moffett, the president of Vanguard Charitable, a prominent DAF provider, said she's seeing the same pattern. The main draw has to do with taxes, according to data and the experts. In the 2025 survey, 62% of donors said tax advantages were a strong motivation for opening a DAF account. Jeffrey Correa, Senior Director of US philanthropy at the International Rescue Committee, told BI that there's been an "explosion" of major donors giving through DAFs. The ability to contribute non-cash assets is also a big factor. Donating appreciated assets lets the donor avoid paying capital gains taxes (in the 2025 survey, 51% of respondents said reducing capital gains taxes was a big consideration). Convenience is another benefit, experts said, since DAFs are more streamlined and cheap than private foundations. Then there's the question of privacy, beyond how DAF donations show up on tax filings. Donors can choose varying levels of anonymity when donating to recipient nonprofits. Only 4% of donors in the 2025 survey opted to be totally anonymous to the recipient organizations, most commonly to avoid public recognition or solicitation. Just 24% said they wanted to avoid scrutiny. Generally, the experts BI spoke with said they don't see confidentiality as the primary appeal of DAFs. Moffett and Correa said they haven't seen more major donors opt for anonymity or express concerns about confidentiality. Giving can be 'opaque' Most of those BI spoke to were enthusiastic about DAFs, but some flagged risks. Mittendorf and Helen Flannery, an associate fellow at the Institute for Policy Studies, found through a study that DAFs distribute grants to politically engaged organizations 1.7 times more than other funders. "They can be great conduits for dark money because they're completely opaque," Flannery said, adding that the public doesn't always know where donors' DAF funds go. Risks aside, the wealthy seem as interested as ever in using DAFs — and in turn slowly eroding the private foundations that once defined the philanthropic world.
Yahoo
15-05-2025
- Business
- Yahoo
How High-Income Earners Build Giving Into Their Tax Strategy — and How You Can, Too
If you're able to give back to charity, it can be an incredibly rewarding experience. And while charitable donations support the causes you care about, they can also benefit you in the form of a valuable tax break. Learn More: Check Out: High-income earners often include charitable giving as a key part of their tax strategy. And even if you're not in a high-income bracket, you can still take advantage of many of these same tools. Here's a look at how the wealthy incorporate giving into their tax strategy — and how you can, too. High-income earners use charitable donations and tax-advantaged accounts to reduce their taxable income. 'High-income earners can realize the tax benefit of charitable giving by contributing to qualified charities, which directly reduces their taxable income,' said Nik Agharkar, owner and managing member of Crowne Point Tax. They may also use charitable giving to avoid capital gains taxes. 'At higher income levels, gifting appreciated non-cash assets — such as publicly traded securities, private equity interests or real estate — offers dual tax benefits: a deduction for the fair market value of the gift and avoidance of embedded capital gains,' said Andrew Constantinides, CFP, investment advisor at Neil Jesani Wealth Management LLC. 'This is significantly more efficient than giving cash,' he said. 'For clients facing concentrated equity positions or large liquidity events, charitable contributions can act as a release valve to manage both income and long-term capital gains exposure.' Explore More: Many high-income earners utilize tools like donor-advised funds (DAFs) and charitable remainder trusts (CRTs), which come with unique tax advantages. DAFs allow earners to front-load charitable deductions in high-income years while maintaining flexibility over how and when grants are distributed. 'It decouples the tax event from the charitable disbursement — a useful feature for clients anticipating fluctuating income or strategic giving goals,' Constantinides said. Charitable remainder trusts are more sophisticated tools often used in legacy planning. 'By donating highly appreciated assets into a CRT, a client can defer capital gains, receive an income stream and claim an immediate charitable deduction based on the remainder interest,' Constantinides said. 'This structure can be particularly powerful when integrated into estate and retirement planning, allowing clients to convert low-yield or illiquid assets into income while ensuring a lasting philanthropic legacy.' Even if you're not a high-income earner, there are still steps you can take to incorporate philanthropy into your tax strategy — and achieve both tax savings and lasting impact. 'Individuals should bunch multiple years of donations into one year to surpass the standard deduction threshold,' said Rachel Richards, CPA and head of product at Gelt, a tax company focused on high-income earners. 'They can also use employer matching, donate appreciated assets or set up recurring gifts for both impact and efficiency. It is very important to keep records and consult a tax advisor to ensure all giving is tax-optimized.' The specific strategies that work for you can vary, but having a plan helps ensure you get the most out of your giving, for both your taxes and the causes you support. 'Regardless of income, giving can be structured intelligently,' Constantinides said. 'Philanthropy should not only be generous, but also intentional and structured. When aligned with broader portfolio and estate goals, it becomes a source of tax efficiency and enduring impact.' 5 Steps to Take if You Want To Create Generational Wealth 6 Daily Habits of Financially Secure People Proven Ways Small Business Owners Are Protecting What They've Built Beyond the 401(k): 3 Strategies To Retire Comfortably and Still Leave Money Behind Sources: Nik Agharkar, Crowne Point Tax Andrew Constantinides, Neil Jesani Wealth Management, LLC Rachel Richards, Gelt This article originally appeared on How High-Income Earners Build Giving Into Their Tax Strategy — and How You Can, Too
Forbes
30-04-2025
- Business
- Forbes
9 Fabulous Financial Moves To Make In Your Forties
9 fabulous financial moves to make in your forties to stay on track for financial freedom Suppose you're in your forties, earning over $250,000 a year and dreaming of an early retirement, congratulations. In that case, you're in a prime position to make strategic moves to supercharge your wealth and minimize your tax burden. This decade is all about maximizing your earnings, shielding assets from taxes and setting yourself up for a smooth glide into financial independence. Extra credit for also prioritizing your happiness and health along the way. Let's dive into the nine steps that will make money more fun and your future more fabulous! Your 401(k) and IRA contributions should be at their peak. Take advantage of catch-up contributions (an extra $7,500 for those 50 and older in 2025), and if you're self-employed, consider a Solo 401(k) or Cash Balance Plan to amplify tax-deferred growth and potentially save millions in taxes between now and retirement. If you are just getting started with a new 401(k), at the bare minimum, contribute enough to get the full employer match. This is like free money from your employer, and even better, you won't owe taxes on this income until you withdraw the funds from your retirement account. Traditional tax wisdom says high earners should go pre-tax, but a Backdoor Roth IRA can help you sidestep income limits and build tax-free wealth. Roth conversions can also be useful in low-income years. Since we are talking about high-earners, if you are making $250,000 or more, just contributing to your 401(k) is not likely going to give you the dream retirement you are expecting to have. If you are already maxing out your employee contributions to your 401(k), $23,500 for 2025, check to see if your company allows for mega-backdoor Roth contributions. This fabulous tax-planning strategy can allow you to sock away an additional $46,500 each year into the Roth portion of your 401(k). If you contributed this much from age 40-45, you could have over $3 million that you could withdraw tax-free at age 70, assuming a 10% net return over this period. How fabulous is that? While the stock market has been scary since Trump announced his Liberation Day tariff plans, I am confident there is plenty of money to be made investing between your 40s and the time you retire. That being said, today is always a good time to be strategic about your taxes on income and investment gains. Municipal bonds, tax-managed funds and ETFs that minimize capital gains can help grow your wealth without giving Uncle Sam a huge tip. How much you trade, which shares you buy and sell and which type of investment vehicles you hold can either level up or level down the tax drag on your portfolio's performance. Donor-advised funds (DAFs) let you give generously while scoring tax deductions today. If philanthropy is a part of your legacy, this is a win-win strategy. Owning a business, being an independent contractor, or even a nice side hustle can unlock a wide array of extremely valuable tax deductions on health insurance, auto expenses, home office expenses and retirement contributions. Plus, it offers flexibility for your next career pivot or even semi-retirement. If you have self-employment income, work with a tax-planning-focused financial planner to help you take advantage of all the tax-saving strategies you are entitled to. The bigger your income, the bigger the potential tax savings will be. I'm based in California, where many business owners see their last dollar of income taxed at more than 50% when combining state and federal taxes, not to mention the additional cost of local taxes and things like the Medicare surtax. While money can't buy you perfect health, it sure can help make it easier to make healthy choices along the way. Likewise, money helps you afford even the most expensive items on your bucket list; if you aren't physically up to the adventures, how much fun will that be? The steps you take today can help you improve your healthspan and enjoyment of your 50s and beyond. If early retirement is on the horizon, protecting assets from unnecessary taxes and ensuring a smooth wealth transfer is crucial. A revocable trust, gifting strategies and state-specific tax planning will keep things airtight. At the very least, check to see if your beneficiaries are up to date on your various accounts. Hopefully, you prioritize your health, as mentioned in the sixth tip; even the healthiest person could get in an accident. I'm in my 40s, and I'm well aware that not everyone I went to high school and college with is still among the living. Living in a high-tax state? Moving to a low-tax state like Florida, Texas or Nevada before retiring could save you hundreds of thousands over time. Run the numbers before settling into a retirement destination. Also, consider the quality of life. I was just commiserating with a few Los Angeles friends about how they miss growing up where they were able to experience the four seasons. As a native Californian, I think it seems like a small price to pay not to have to shovel snow. It did rain for a bit this weekend, so that is enough weather for me. Palm Springs seems to be my client base's most common retirement destination. Others are planning to retire abroad. If they have built their wealth and financial freedom in the California economy and tax system, their budget is used to the cost of living in CA. However, if you want to move from many other parts of the country, matching your preretirement income may not cut it if you move to Manhattan, San Francisco, West Hollywood or Palm Springs. Retirement isn't just about money—it's about freedom. Do you want to consult, travel, launch a passion project, volunteer or truly unplug? The more intentional your plan, the smoother your transition will be. Most people will combine several things to fill their days once work is an option. Especially for those of you looking to retire early, what you want to be doing in your 60s may not be the same as when you are in your 80s. A fabulous retirement plan will allow you the financial freedom to pivot and continue enjoying life wherever your heart's desire takes you. Your 40s are a golden time to secure your financial future. By implementing these strategies, you can accelerate wealth-building, lower your tax bill and lock in the freedom to retire early on your own terms. Want to make these moves work for you? Start now—the best financial future is the one you craft today!
Yahoo
09-04-2025
- Business
- Yahoo
Tax Day Countdown: 2 Ways Seniors Can Save Big and Give Back When They File
If you're a senior citizen looking to lower your taxes and donate to charity, you're in luck. Two established tax strategies can help you achieve this goal with the IRS for the 2024 tax year. There is no way around the fact that you have to file your taxes (by April 15 this year), but being able to save while helping others out is just financial gravy. For You: Try This: 'Both qualified charitable distributions (QCDs) and donor-advised funds (DAFs) are great tax strategies for people to use to both help others and save in taxes,' said Dave Flegal, CPA, CFP, founder and financial planner at Flegal Financial Planning. He said these strategies are important, because many people don't get a tax deduction for their charitable giving, due to standard deductions being so high — $14,600 for single and $29,200 for married filing jointly. Therefore, he said he frequently utilizes DAFs and QCDs with his clients, as a way to help them achieve both their charitable giving and tax savings goals. If you're interested in helping others and lowering your tax burden, one — or both — of these options could be a good choice for you and your itemized deductions. Keep reading to learn more about DAFs and OCDs. 'A DAF is like a charitable investment account for the sole purpose of supporting charitable organizations you care about,' Flegal said. 'When you contribute cash, securities or other assets to a donor-advised fund, you are generally eligible to take an immediate tax deduction.' He said the funds you allocate to a DAF can be granted to any eligible IRS-qualified public charity. With taxes filed, retirement plans funded and donations given, seniors are really being the best they can be this calendar year. 'Unlike the QCDs, the funds you would use to fund the DAF need to come from cash or investments from a bank account or brokerage investment account — after tax,' he said. He said this strategy can be beneficial for seniors with large investment gains in after-tax brokerage accounts. 'Clients can gift these funds to the DAF, receive a tax deduction for the fair market value of the investment and avoid paying tax on any of the gain,' he said. 'This strategy has the potential save seniors a lot in taxes.' However, he said this approach typically only makes sense if you're planning to give multiple years' worth of charitable donations in one year, then give from the DAF for multiple years in the future. 'In summary, giving to a DAFs can be great for someone with large investment gains in an after-tax brokerage account,' he said. Trending: 'Qualified Charitable Donations are a great option for seniors who are required to take distributions [required minimum distributions] from traditional IRA or 401(k) accounts based on their age — age 70.5 to 73-plus based on their year of birth,'' said Heather Comella, CFP, founder and lead planner Folsom Wealth Advisors. 'These distributions are subject to ordinary income tax rates, and large RMDs can push seniors into high tax rates based on the tiered tax system.' She said a QCD allows seniors to satisfy their RMD with funds from their retirement account by making a seamless contribution to charity, which is a magnanimous form of tax credit and deduction when you file your return. 'Now, you can't make a QCD directly from your 401(k) account, but you can roll over your funds to an IRA and then make a donation,' she said. There are just a few simple steps to follow. 'You can contact your IRA account custodian to request a QCD be sent directly from your IRA account to your preferred charity,' she said. 'However, in order for this to satisfy your annual RMD amount, you'll need to initiate the QCD before you initiate any distributions to satisfy your RMD for the year.' She said the charity must also be a qualified 501(c)(3) organization. 'Using a QCD to satisfy part of your RMD requirement means the amount is never added to your taxable income, therefore reducing your annual tax liability in the year the QCD was made.' If you're a senior in a high tax bracket who doesn't need your IRA, this can be a particularly powerful strategy, said Peter Ankeny, CFP, founder of Wolf Pine Capital. 'When you make a QCD, you can transfer up to $105,000 directly from your IRA to charity in 2024, completely bypassing your taxable income,' he said. 'This is especially valuable, because it reduces your adjusted gross income (AGI) rather than just providing a deduction, which can help minimize taxes on Social Security benefits and reduce Medicare premiums.' 'The decision between these strategies often comes down to your income sources and asset composition,' Ankeny said. 'If you're in a high tax bracket and don't need your IRA distributions for living expenses, QCDs are usually the better choice because they directly reduce your taxable income.' However, he said this isn't always the case no matter your filing status or tax bill. 'If you're sitting on highly appreciated securities like tech stocks that have seen massive gains, a DAF might be more advantageous,' he said. 'Especially since it gives you the flexibility to spread your actual charitable giving over multiple years, while taking the deduction immediately.' Ultimately, he said the benefits of both strategies extend beyond those of simple cash donations. This is because they can significantly reduce your overall tax burden, while allowing you to support causes you care about. 'The main difference is that QCDs work best as an income management tool, while DAFs excel as an asset management strategy,' he said. 'For optimal results, many of our clients actually use both — QCDs for their annual giving and DAFs for strategic giving of appreciated assets.' He said this combination can offer maximum tax efficiency while providing you with giving flexibility. More From GOBankingRates 5 Luxury Cars That Will Have Massive Price Drops in Spring 2025 4 Things You Should Do if You Want To Retire Early 5 Cities You Need To Consider If You're Retiring in 2025 10 Cars That Outlast the Average Vehicle This article originally appeared on Tax Day Countdown: 2 Ways Seniors Can Save Big and Give Back When They File Sign in to access your portfolio
