After LinkedIn Launched in 2011, then-VP of product management Adam Nash faced a pleasant dilemma: He was sitting on a bonanza of liquid new stocks, but needed a tax-efficient way to contribute some of them to charity. Then he discovered it donor advised fundsor DAFs. These special accounts can provide an easy and efficient way to give to a wide variety of charities, from animals to veterans to protecting the environment.
Nash loved the idea of DAFs, but was less impressed by the tedious process of setting them up and making donations. Nash, a longtime Silicon Valley executive and angel investor who ran wealth management platform Wealthfront from 2013 to 2016, wondered why there wasn’t an app to streamline and automate charitable giving through donor-advised funds, like other fintechs. platforms that help users budget, save, invest, and more.
Daffy, which launched in 2021, is Nash’s solution to the problem. The app allows users to make contributions to a DAF, a tax-advantaged account for charitable giving. Contributions can be invested in a number of predetermined portfolios, from a “standard growth” fund split between 75-35 stocks and bonds, to more conservative or aggressive ones, depending on the donor’s risk tolerance. When they decide to donate to a specific charity, Daffy does the work. Likewise, donors will find all the tax procedures they need in one place. The app also allows users to leave reviews of their preferred charities and automate contributions.
“It’s really striking to me how important giving is. We teach our children to give. It is not just a financial task. It’s something moral, it’s ethical, it’s part of the way we want to live,” says Nash. “And it’s a very powerful thing, to have an app in your pocket where, with a few taps, you can send money to almost any charity in the United States.”
Nash is developing what he found attractive about DAFs more and more attractive to others who want to get the most out of their charitable contributions. If you’re interested in setting up your own, here’s what you need to know.
What is a donor advised fund?
It may help to think of DAFs as similar to a 401(k), health savings account or 529 account, says Amy Pirozzolo, head of donor engagement at Fidelity Charitable. Individuals or families make lump sums or automated recurring contributions to the DAF, which can then be invested. Because contributions and profits will ultimately go to charity, investments grow tax-free.
“This is a dedicated account for your charitable giving, like a retirement account,” says Pirozzolo.
Once money is contributed to a DAF, it cannot be returned; it’s really a charitable contribution. But a DAF gives you the flexibility to plan and maximize your donations, and you’re generally eligible for an immediate tax deduction. But you don’t have to pick a charity to donate money to right away; Like other types of financial accounts, a DAF is simply a container for your charitable donations.
While most people don’t plan their giving around tax breaks, it doesn’t hurt to contribute to a DAF in the years when it’s most beneficial to you, says Pirozzolo. For example, if you are a small business owner, commission sales representative, freelancer, or other type of employee with variable income and bonuses, you may have a year, but you may want to give as much as you normally do. Having funds in a DAF—especially if they are invested and grown—can help with this.
Or look at it another way: Since giving is such an integral part of many people’s personalities, having contributions already set aside can help you give every year, even when the market is down or your salary is down.
“This is a great year (for the stock market), we will see a lot of contributions in these accounts,” says Pirozzolo. “But even in bad years, we see that subsidies come out of these accounts, even when the market is down. People can no longer give and the tax deduction has been removed. So it supports the sector even then.”
Another advantage: You can directly donate appreciated assets (stocks, private equity, crypto, etc.) to a DAF that many charities cannot accept directly. Instead of selling the assets, paying the capital gains, and giving the rest of the money to the organization, you avoid capital gains altogether.
“You’re saving on taxes and donating more to charity,” says Pirozzolo. “I think DAF is a way to multiply your impact. It makes all your charitable giving easier.”
When you’re ready, you can give them input IRS qualified public charity—you become a donor who advises the fund how you want to give money, hence the name.
Pirozzolo cites disasters such as recent hurricanes that devastated Florida, North Carolina and other parts of the US South. There were many people went to donate to aid organizationsand they were able to do it from the money they had already saved in the DAF.
Daffy’s Nash says the ability to invest contributions is one of the main advantages of a donor-advised fund. This can overcome the worry of giving up future earnings, which explains why many people otherwise wait until near or near retirement to give seriously.
“Donor-advised funds take away that drawback, right? Because the money is still invested,” he says. “The nice benefit for a lot of people is that they like this idea of their charitable dollars growing.”
There have been DAFs almost a centurybut they’ve seen “explosive” growth in just the last few years, says Pirozzolo. Donors It gave 54,800 billion dollars From DAFs to charities in 2023, over $28.5 billion in 2019. There are about 1,000 sponsoring organizations, including some big names. The vanguard Charities and Fidelity Charitable, as well as smaller players like community foundations.
Some people also have access to a DAF as a workplace benefit. Daffy, for example, partners with companies like OpenAI and Acorns to give employees charitable accounts. Employers can match contributions or give charitable gifts to each employee.
Account minimums and fees vary by sponsoring organization. In addition to the fees paid for the account, there may be a management fee for the investments made, which must be taken into account and taken into account.
