Untitled Thread

And something else to remember is that, depending on specific circumstances, it might not be all that beneficial to contribute to a DAF as compared to itemizing.

For instance, if you set up a DAF the custodian will charge some amount to maintain the account. This is different from your typical brokerage where there isn't a fee for the account itself. So, if you have the entire DAF in VTSAX, VTI, or similar, you would pay the 0.02% (or is it 0.04%?) fund expense ratio (indirectly), but you would also pay the institution that houses the account something like 0.1% to 0.5%. It's not a lot, but it's also not nothing.

Then there's the matter of correctly calculating the tax benefit. What I mean by that is that you need to look at the tax benefit as the delta between what you would be able deduct with and without the DAF in the mix. For instance, suppose you didn't set up the DAF at all and you can take the $31,500 standard deduction for MFJ. If you set up a DAF, you can usually only deduct an amount up to 30% of your current year AGI (the rest gets carried forward to future years; I'm not sure if you "lose it if you can't itemize the next year or if it waits around until the next chance you have to itemize). So, it's not like you can donate $1M to the DAF and deduct all of it at once (unless $1M is less than 30% of your AGI).

For a notional example, consider a married couple with an AGI of $150k. The max they can put into a DAF without triggering the carry-over into a future tax year is $45k. But if they don't itemize they get a standard deduction of $31,500. That means that for them, the benefit of maxing the DAF contribution is only an additional deduction of $13,500. Odds are that with an AGI of $150k they are in the 12% bracket, so the benefit of putting $45k into the DAF works out to about a $5,400 tax savings. Now, if you also make cash gifts (which are governed by a different limit), then you could potentially improve on that (up to 50% of AGI), but of course that only makes sense if you already had plans to make gifts and you have the assets available and you want to lock them away in a DAF, or if you have a bunch of other deductions that you can stack together.

Something else to consider is that once you reach age 70.5, DAFs essentially become pointless (for most of us in the FI community). The reason for that is because you can make qualified charitable contributions (QCDs) directly from an IRA (e.g., after rolling your 401(k) over into an IRA), count the entire distribution for RMD purposes (if you are at the stage of being required to take RMDs), pay $0 taxes on the distribution, and that charitable organization also doesn't pay taxes on it. So, if you're 35 and thinking about setting up a DAF, that makes more sense than if you're 65.

Yet another thing to consider is that, IIRC, the One Big Beautiful Bill does contain some adjustments to how DAF deductions are calculated, meaning that most people will no longer be able to deduct the full deductible amount starting next year. I don't know the particulars, but I just remember reading something about it.