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Richard Connor  |  October 22, 2019

WHEN I WAS in the workforce, it was easy to give to charity. Now that I’m semi-retired, it seems like more of a struggle—for four reasons:

  • Because I’m no longer employed fulltime, I can’t donate through payroll deduction, which used to make giving simple and automatic.
  • Leaving fulltime employment often results in reduced or uncertain income, and sometimes both. Today, I find it harder to know how much I can afford to give.
  • Retirement heightens thoughts of leaving a legacy to children and other heirs. If I give to charity, it’ll cut into the sum I can bequeath.
  • The Tax Cuts and Jobs Act of 2017 dramatically increased the standard deduction. That made charitable giving somewhat less valuable from a tax perspective.

Forbes recently ran an article on the impact of 2017’s tax code changes on last year’s charitable giving. In 2018, 21 million fewer taxpayers claimed nearly $37 billion less in donations, compared to the prior year. This doesn’t necessarily mean those who didn’t deduct donations in 2018 failed to give to charity. But it does indicate that many who had given in 2017 weren’t able to take a tax deduction in 2018. This change effectively increases the cost of giving, potentially discouraging many who otherwise would have made donations.

Many of us find other ways to give, including donating time. I’ve gotten involved in AARP’s Tax-Aide program, helping to prepare tax returns for seniors and low-to-middle-income families. My wife and I also contribute to the many charitable events our extended family participates in. It’s a real source of pride to see the generosity of our larger family. But neither of these replaces the workplace programs, which were the largest part of our monetary giving.

Recently, however, my wife and I found an option that has filled this gap: We created our own donor-advised fund. According to the National Philanthropic Trust, “A donor-advised fund, or DAF, is a giving vehicle established at a public charity. It allows donors to make a charitable contribution, receive an immediate tax deduction and then recommend grants from the fund over time.”

One of the obstacles, however, can be the minimum donation required to set up a DAF. At Fidelity Charitable and Schwab Charitable, you need $5,000. Vanguard Charitable requires a $25,000 initial contribution. Also, investors in donor-advised funds pay annual administrative fees on account balances. In addition, some DAFs require relatively high minimum grants—perhaps $500 every time you give.

We chose to open our fund at Growfund, which I heard about because a family member works at the fund’s parent organization. Growfund was developed to bring the benefits of a DAF to everyday Americans. There’s no cost to open an account and your contributions are immediately tax-deductible. The minimum initial donation is $1. Your contributions can be invested and left to grow over time. There are no annual account fees, though there is a 1% administrative fee charged at the fund level.

We even got to name the fund. It may not be the Gates Foundation, but it was fun to come up with a name—we dubbed it the Richard and Victoria Connor Fund—and it gave my wife and me the chance to have some serious conversations about what causes truly matter to us.

At Growfund, minimum grants are $10, and can be onetime or set up as recurring donations. Grants can be made to more than 1.8 million charities. There’s a variety of options for contributing, including cash, check, credit card, wire transfer and payroll deduction. You also have the option of contributing other types of financial assets, including stocks, mutual funds and real estate. That can be a smart move if it’s an asset that’s appreciated in value, because you avoid the capital gains tax bill.

That isn’t the only potential tax savings. Many financial planners now recommend bundling several years of charitable contributions into one tax year, so you’re able to itemize your deductions and get a tax break for your generosity. Once the money is in a DAF, you can provide grants to charities at any frequency and over a time period of your choice. Depending on the DAF, there may be no limitations on when assets must be distributed.

On that score, I’ve read several articles that indicate that the amount contributed to DAFs is significantly higher than the amount distributed. While tax considerations are important, remember why you’re donating. There are many worthwhile charities that need our support. Make sure you follow through—and use your DAF to help the causes you care about.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Solo EffortWhat Number and Taking Your Lumps. Follow Rick on Twitter @RConnor609.

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