The Jewish Link sat down with Robin Rochlin, managing director of endowments at Jewish Federation of Northern New Jersey, to discuss donor-advised funds.
What is a donor-advised fund (DAF), and how does it work?
Think of a donor-advised fund, or DAF, as an investment account dedicated exclusively to charitable giving. It allows donors to contribute cash, securities or other assets to a fund, receive an immediate charitable income tax deduction, and then recommend grants to their favorite charitable organizations over time. It’s a simple, tax-efficient way to plan and manage your philanthropy.
What are some key benefits of using a donor-advised fund?
There are several advantages to using a DAF:
- Tax Savings: Donors can take an immediate tax deduction when they contribute to their DAF. If they donate appreciated stock, they can avoid capital gains taxes (typically 15%) which would have been due if they had sold the stock on their own, which means more money goes to charity.
Here’s an example. Sue and David own 100 shares of Google stock that they bought years ago for $25 per share. The stock is now worth $200, or about $20,000. If they sell the stock, they will incur capital gains taxes of 15%, or $2,625. If they contribute the shares directly to charity or a DAF, the charity will sell the stock and no tax is due. The full use of the $20,000 is credited to their DAF to support their charitable giving over time. And Sue and David may take a charitable income tax deduction for the full fair market value of the gift, for even greater savings.
- Philanthropic Planning: A DAF allows donors to be strategic about their giving. Many donors contribute to their DAF in high-income years and then request distributions to the causes they care about at their convenience over time, even in years when they otherwise may not have been able to give as much.
A DAF can also be a way to engage children in charitable giving or be a source for legacy planning. Many of our donors name their adult children as “successor recommenders” who can request charitable distributions from the fund after the donors pass. Other donors name Federation or other charities as the ultimate beneficiaries of the account including setting up endowment funds which will perpetuate their annual charitable support.
- Convenience and Organization: Rather than keeping track of multiple charitable contributions throughout the year, donors can consolidate their giving into one account. Federation’s DAF online portal makes it easy to request grants, track giving history, and even set up recurring donations.
- Emergency Giving: Having a DAF means donors already have funds set aside and ready to deploy when urgent needs arise, such as disaster relief or emergency support for Israel.
What makes a donor-advised fund with Jewish Federation different from other DAF options?
When you establish a DAF with Jewish Federation, you get personal attention and expert guidance from our endowment professionals. Unlike national providers, where you might have to call an 800 number, our team is here to provide personalized service. And, account fees help support Federation’s work, which means your investment in philanthropy also strengthens the Jewish community.
Can donors use a Federation DAF to support both Jewish and non-Jewish causes?
Absolutely! While many donors choose to support Jewish organizations, DAFs at Federation can be used to contribute to a wide range of qualified 501(c)(3) charities, whether they are Jewish or secular, local, national or global. This flexibility allows donors to support all the causes they care about while ensuring that their philanthropy is anchored in their values.
What types of assets can be contributed to a DAF?
Donors can contribute a variety of assets. Most common are cash and publicly traded securities like stocks, bonds, mutual funds and cryptocurrencies. Some donors contribute privately held business interests (such as closely held stock or LLC interests) or real estate to achieve greater tax or estate planning benefits.
By donating appreciated assets, donors can maximize their impact while reducing their tax liability.
How does a DAF help with tax planning?
One of the most strategic ways to use a DAF is through “bunching”—a tax planning technique where donors contribute multiple years’ worth of charitable giving into their DAF in a single year. This helps them exceed the standard deduction threshold and allows them to itemize deductions in high-income years. Then, in other years, they can take the standard deduction. Distributions from a DAF can be made while continuing to support their favorite charities through grants from their DAF.
How easy is it to establish a DAF with Federation?
It’s incredibly simple. Setting up a fund requires completing a short agreement and making an initial contribution. From there, donors can add to their fund at any time and recommend grants whenever they’re ready. Our team is here to assist with any questions and provide guidance on maximizing philanthropic impact.
What advice would you give to someone considering opening a DAF?
I’d encourage them to think long-term about their philanthropic goals. A DAF is more than just a tool for tax efficiency—it’s a way to make giving intentional and impactful. And with Jewish Federation, donors get the added benefit of working with a team that understands both philanthropy and Jewish values. Give us a call to learn more.
For more information or to discuss how you can make the most of your donor-advised fund, please contact Robin Rochlin at [email protected]
