A donor-advised fund (DAF) is an investment account that allows donors to take a tax deduction now and give the money to charity later. When you put money into a DAF, you can deduct it just as you would deduct charitable contributions. Then you can direct the DAF on how to invest the money, and choose to donate it whenever you want.
If you want to invest to give later, DAFs have some clear advantages, plus some limitations. Is it better to use a DAF, or to keep your money in an ordinary (taxable) investment account?
According to the assumptions made in this essay:
- If I want to invest in a portfolio of stocks and bonds, then I should use a DAF.
- If I have the ability to use leverage or to invest in assets with low correlation to stocks and bonds, then I should keep my money in a taxable account.
Disclaimer: I am not an investment advisor or a tax advisor. Nothing in this post should be construed as investment advice or tax advice. This content is for informational purposes only. Please do your own research or seek professional advice and otherwise take reasonable precautions before making any significant investment or tax decisions.Continue reading