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Funding Fidelity DAF from VTSAX

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  • Funding Fidelity DAF from VTSAX

    We recently opened a Fidelity DAF and did a “trial” run, taking advantage of Fidelity’s removal of minimal deposits. we donated a few lots of VTSAX from Vanguard. Here is what we learned:

    1. We love Vanguard, but don’t bother calling their customer service during market hours, you will wait for a long time, at least these days.

    2. Once you get through to Vanguard, their “giving” rep is very helpful and knowledgeable. They know that the masses will use Fidelity’s DAF since Vanguard requirements are a bit pricey, and they will help.

    3. You can “pull” the donation from Fidelity by filling out paper work and mailing or faxing to Fidelity. Pain in the butt in 2021. Alternatively, you “push” the donation from Vanguard by filling out an online form that they send you and e-sign it. You can choose the exact lot based on cost basis assuming you chose “specific ID”.

    4. Despite what Fidelity told me, I was able to donate VTSAX without needing to convert to its ETF equivalent (VTI). I did notice that Vanguard had mentioned that as well in another forum (can’t donate mutual funds) but perhaps that is no longer an issue. Perhaps it helped that I already have a non DAF account with Fidelity, although not sure.

    Summary:
    I was able to open a Fidelity DAF and fund it by donating specific VTSAX lots from Vanguard using an online form. The process took about 7 business days and worked well.





    Last edited by EMscout; 01-20-2021, 08:10 PM.

  • #2
    Curious what the investment options are like inside the Fidelity DAF? What do you have yours in?

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    • #3
      I've had the Fidelity DAF for a couple of years now. These are the available investment options:
      https://www.fidelitycharitable.org/g...t-options.html

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      • #4
        I’m still deciding on my AA in the DAF. Will probably end up with 70% stocks 30% Bonds which is more conservative than my retirement accounts.

        As linked above they do have blended funds with higher ERs as well as index funds. I will go with the Index funds with minimal ER.

        already pay 0.6% management fee and I think lowering costs/drag is being a better steward of the money, even if it’s no longer technically mine.

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        • #5
          When it comes to asset allocations, think about the time frame over which you're planning to give the money in the DAF away. If you're donating many years' worth of donations up front, you might want to invest the money. But if you're planning to donate the money over the course of a year or two, it might be wiser to put it in a money market account to insure that a big market downturn doesn't ruin your ability to make charitable grants right when your charities are in need of the most help.

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          • #6
            Originally posted by artemis View Post
            When it comes to asset allocations, think about the time frame over which you're planning to give the money in the DAF away. If you're donating many years' worth of donations up front, you might want to invest the money. But if you're planning to donate the money over the course of a year or two, it might be wiser to put it in a money market account to insure that a big market downturn doesn't ruin your ability to make charitable grants right when your charities are in need of the most help.

            That is great insight. I’m thinking both short term and mid to long-term when it comes to giving. I want the money to have a chance to grow with the market so I can make larger donations in the future, but I also want to have money available to donate each year.
            Perhaps a better choice would be 60-70% stock and the rest in fixed income.

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            • #7
              For two reasons it is not a good idea to frontload DAFs. First, you are paying 0.6% annually on the DAF holdings, in addition to any fund expenses. Those fees would otherwise go to your charity of choice. Second, you aren’t maximizing the amount of your own tax deduction this way. If you donate $10,000 to the DAF and then it grows to $15,000 which you donate to charity one year later, your charities have received about $14,900 ($15,000 minus the 0.6% fee) and you have gotten a tax deduction for $10,000, If you had left that money in your taxable account and donated it a year later by ‘laundering’ the donation through your DAF, your charities would have received $15,000 and you would have gotten a tax deduction for $15,000.

              We try to keep our balance under 1 year’s worth of donations, usually about 6 months. We’re trying to get it down to zero.

              The exception to this general guideline is if you have unusual tax arbitrage opportunities (ie, in a very high tax bracket before retiring to a lower tax bracket; or bunching donations to optimize your state or federal deduction opportunities, etc).

              Comment


              • #8
                Originally posted by FIREshrink View Post
                For two reasons it is not a good idea to frontload DAFs. First, you are paying 0.6% annually on the DAF holdings, in addition to any fund expenses. Those fees would otherwise go to your charity of choice. Second, you aren’t maximizing the amount of your own tax deduction this way. If you donate $10,000 to the DAF and then it grows to $15,000 which you donate to charity one year later, your charities have received about $14,900 ($15,000 minus the 0.6% fee) and you have gotten a tax deduction for $10,000, If you had left that money in your taxable account and donated it a year later by ‘laundering’ the donation through your DAF, your charities would have received $15,000 and you would have gotten a tax deduction for $15,000.

                We try to keep our balance under 1 year’s worth of donations, usually about 6 months. We’re trying to get it down to zero.

                The exception to this general guideline is if you have unusual tax arbitrage opportunities (ie, in a very high tax bracket before retiring to a lower tax bracket; or bunching donations to optimize your state or federal deduction opportunities, etc).
                Overall your logic is sound, however it does not take into consideration the “psychology of giving”. I cannot speak for others, but in my case, it is easier for me to make the donation early and avoid the psychological inertia when I see that my taxable increases. There is always a purchase or remodel around the bend. It is easier for me to give more generously when it is not coming out of my account. That’s just me being honest and likely due to growing up modestly and (still) living frugally.

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                • #9
                  Originally posted by EMscout View Post

                  Overall your logic is sound, however it does not take into consideration the “psychology of giving”. I cannot speak for others, but in my case, it is easier for me to make the donation early and avoid the psychological inertia when I see that my taxable increases. There is always a purchase or remodel around the bend. It is easier for me to give more generously when it is not coming out of my account. That’s just me being honest and likely due to growing up modestly and (still) living frugally.
                  Yes, understood. We donate about 1-2x per year from our taxable investments so there is zero impact on cash flow. And having the DAF funded makes donating easier; we donate more, and more often. But our average dollar is in the DAF for just a few months, so we don't need to worry much about DAF asset allocation.

                  Comment


                  • #10
                    Originally posted by FIREshrink View Post
                    For two reasons it is not a good idea to frontload DAFs. First, you are paying 0.6% annually on the DAF holdings, in addition to any fund expenses. Those fees would otherwise go to your charity of choice. Second, you aren’t maximizing the amount of your own tax deduction this way. If you donate $10,000 to the DAF and then it grows to $15,000 which you donate to charity one year later, your charities have received about $14,900 ($15,000 minus the 0.6% fee) and you have gotten a tax deduction for $10,000, If you had left that money in your taxable account and donated it a year later by ‘laundering’ the donation through your DAF, your charities would have received $15,000 and you would have gotten a tax deduction for $15,000.

                    We try to keep our balance under 1 year’s worth of donations, usually about 6 months. We’re trying to get it down to zero.

                    The exception to this general guideline is if you have unusual tax arbitrage opportunities (ie, in a very high tax bracket before retiring to a lower tax bracket; or bunching donations to optimize your state or federal deduction opportunities, etc).
                    If you consider the alternative -- keeping the money invested outside of a DAF -- i.e. in a taxable brokerage account, your money is subject to tax drag. Depending on dividend % and capital gains tax + state income tax, your tax drag may approach or even exceed that 0.6%.

                    Regarding investment growth after you donate to the DAF, the money you saved on taxes in the year you donated also grows alongside it. An example Let's say you donate $100,000 now and save $30,000 on taxes as a result. Over time, even with the DAF fees / tax drag, your investments double. Your donation to the DAF is now worth $200,000 and the tax savings of $30,000 was invested and doubled to $60,000.

                    If you had waited until the investment had doubled outside the DAF, you'd donate $200,000 and save $60,000 in taxes. It's a wash.

                    One benefit of donating large sums at once, especially if you pay no mortgage interest, is that the first $15,000 or so (assuming MFJ) won't benefit from a tax deduction with the standard deduction of ~ $25,000. Once you're over that hump, every dollar donated results in a deduction at your marginal rate.

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