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  • DAF and Large Vesting Event

    Just want to check my thinking with the Forum. I have about $200k that will vest in my 457f this year. The way this is set up, my account shows I have the $200k, but the year it vests the taxes are paid from the 457f. So, let’s say my account will drop to $100k (round numbers) as I pay the taxes.

    OK, the money was never really all mine anyway, so this is not a cause for concern as the taxes get paid. But I am thinking about funding a DAF this year from my taxable to offset the tax hit. I have actually been planning to do this anyway to set myself up for charitable donations in retirement when I am most likely going to be taking the standard deduction. i have some low basis funds in taxable that I can specific lot ID and use.

    OK, the questions:
    1. Good idea? Does this work conceptually?
    2. Is there an amount to donate to the DAF that maximizes the tax advantage? Specifically should I just donate $100K?
    3. I know I am getting two advantages with the donation: I avoid LTCGs; I offset a taxable event with an equivalent charitable deduction. Any other factors to consider?
    3a. For example, I think the amount donated is not subject to the donation of capital property rules because it is from a mutual fund with publicly traded shares, right?
    3b. I do think the donation has to be less than 30% of my income for the year. Is that also right?

    Any other insights welcome.

  • #2
    1. Yes, I think this is a good idea if the donation amount is palatable
    2. Can’t tell w/o a tax projection (i.e. to see if there are any tax adjustments like 199a that w/b impacted) but, in general, this s/bl pretty close if not on the dot
    3. Make sure you donate only shares held for at least 1 yr + 1 day
    4. Must be getting tired, not sure what you mean
    5. Correct
    Other thoughts?

    Fido or TDA is our fav for a DAF
    • Fido first unless you’re already using TDA and comfortable w/the platform).
    • TDA is our custodian, so more familiar with them than a lot of other custodians
    A DAF donation is also a great way to offset a Roth conversion
    • Market corrections/bears are, IMPO, an ideal time for a Roth conversion
    Last edited by jfoxcpacfp; 03-06-2022, 05:09 AM. Reason: Corrected “idea” to “ideal”
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Originally posted by jfoxcpacfp View Post
      1. Yes, I think this is a good idea if the donation amount is palatable
      2. Can’t tell w/o a tax projection (i.e. to see if there are any tax adjustments like 199a that w/b impacted) but, in general, this s/bl pretty close if not on the dot
      3. Make sure you donate only shares held for at least 1 yr + 1 day
      4. Must be getting tired, not sure what you mean
      5. Correct
      Other thoughts?

      Fido or TDA is our fav for a DAF
      • Fido first unless you’re already using TDA and comfortable w/the platform).
      • TDA is our custodian, so more familiar with them than a lot of other custodians
      A DAF donation is also a great way to offset a Roth conversion
      • Market corrections/bears are, IMPO, an idea time for a Roth conversion
      Thanks Johanna. Perfect.

      re 4, I was reviewing Pub 526 and came across some limitations on donating appreciated property. I was surprised, but then saw there was a specific exception for shares valued on publicly traded markets, which I suspect is the situation most of us are in.

      I appreciate the flexibility of Fidelity’s DAF. The only reason I’d use Vanguard, which otherwise has a more restrictive minimum on donations, is that is where the shares are located. I’ll have to review some of the othe Fidelity v. Vanguard DAF threads on pros and cons. Thanks for the reminder.

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      • #4
        Originally posted by Larry Ragman View Post
        I appreciate the flexibility of Fidelity’s DAF. The only reason I’d use Vanguard, which otherwise has a more restrictive minimum on donations, is that is where the shares are located. I’ll have to review some of the othe Fidelity v. Vanguard DAF threads on pros and cons. Thanks for the reminder.
        If you open DAFs at both you can take advantage of the ease of transfer with your VG accounts then donate to your Fidelity DAF to take advantage of their lower limit for outgoing donations. I think PoF has a post about this on his blog.

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        • #5
          Originally posted by GasFIRE View Post
          If you open DAFs at both you can take advantage of the ease of transfer with your VG accounts then donate to your Fidelity DAF to take advantage of their lower limit for outgoing donations. I think PoF has a post about this on his blog.
          That sounds like a good work around. We have a few big rock donations, but my better (and certainly more charitable) half also has 15 or 20 organizations she sends small amounts to every year. No go with Vanguard obviously. I’ll check out the POF post, thanks.

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          • #6
            1. great idea.
            3. if your goal is to stay in your same tax bracket, then $200k -( Stnd. deduction mfj ) - $10k = same bracket.
            If you can tolerate a higher bracket, then donate less.

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            • #7
              Originally posted by jz- View Post
              1. great idea.
              3. if your goal is to stay in your same tax bracket, then $200k -( Stnd. deduction mfj ) - $10k = same bracket.
              If you can tolerate a higher bracket, then donate less.
              Fortunately or unfortunately I am at 37% these days, so tax brackets aren’t the issue. I am just trying to offset the nominal gain from the vesting event to save some taxes while also setting myself for charitable donations in retirement.

              Side note, I probably won’t use this account while I am still working because between mortgage interest and charitable I am still over the MFJ standard deduction. But in retirement in 1-3 years I plan to pay off the mortgage and then the DAF makes more sense as the source.

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              • #8
                OP, your plan sounds good. I currently donate significant amounts to charity each year using QCDs, and I have set up a Vanguard Charitable account to continue my donations after I die. The VC account will be funded partly by my IRA when I die, and partly by taxable appreciated stock and mutual fund shares from my Vanguard brokerage account while I am alive.

                Similar to your vesting offset strategy, I pointed out to my wife, who has a large IRA that will go to our children, my current VG donations provide a great offset opportunity for her to convert chunks of her IRA to a Roth IRA. That will let our children inherit tax free money rather than taxable money with a ten year distribution requirement.

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                • #9
                  I like your plan, and you are correct on the upper limit of DAF giving being 30% of AGI when donating appreciated assets. Like jfoxcpacfp mentioned, it's important to donate assets held more than one year so that you can deduct the current value of the assets donated. With assets held under a year, you can only deduct the basis.

                  A post of mine that may be of value is how to choose the lots from Vanguard with the highest percentage appreciation to donate:And the post on donating from Vanguard brokerage to Vanguard Charitable (and subsequently making a grant from VC to Fidelity Charitable:Cheers!
                  -PoF

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                  • #10
                    Originally posted by PhysicianOnFIRE View Post
                    I like your plan, and you are correct on the upper limit of DAF giving being 30% of AGI when donating appreciated assets. Like jfoxcpacfp mentioned, it's important to donate assets held more than one year so that you can deduct the current value of the assets donated. With assets held under a year, you can only deduct the basis.

                    A post of mine that may be of value is how to choose the lots from Vanguard with the highest percentage appreciation to donate:And the post on donating from Vanguard brokerage to Vanguard Charitable (and subsequently making a grant from VC to Fidelity Charitable:Cheers!
                    -PoF
                    Thanks for the insights and the links. I’ve read most (all?) of your posts on the topic, but the CharityVest move is interesting. I look forward to learning more about it.

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                    • #11
                      Larry Ragman I've got a post coming out on Tuesday from them to coincide with the launch of their investment options.

                      They'll be offering 0 admin fees for 2022 for new accounts and 0 fees through 2023 if you transfer funds from another DAF.

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                      • #12
                        Originally posted by PhysicianOnFIRE View Post
                        Larry Ragman I've got a post coming out on Tuesday from them to coincide with the launch of their investment options.

                        They'll be offering 0 admin fees for 2022 for new accounts and 0 fees through 2023 if you transfer funds from another DAF.
                        Following!!!

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                        • #13
                          Originally posted by adventure View Post

                          Following!!!
                          That post is live now: https://www.physicianonfire.com/bett...-advised-fund/
                          I've used DAFs as part of our giving plan for nearly a decade, and all that time, I've kept my eye out for a better donor advised fund. It has arrived!

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                          • #14
                            Originally posted by PhysicianOnFIRE View Post
                            CharityVest looks promising, but unfortunately they can't accept mutual fund shares yet, and I am still on the old mutual fund platform at Vanguard and therefore own no ETFs. Once I switch over to the Vanguard brokerage platform later this summer, maybe I can have Vanguard convert my mutual fund shares to ETF shares. Then I could switch my DAF from Schwab Charitable over to CharityVest.

                            I'll be following your future comments on CharityVest with great interest!

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