Great post. One more resource that EAs should be aware of is Charitable Solutions LLC. They facilitate large (>$250k) DAF donations of exotic assets like restricted stock, LP interests, art, etc.
This looks really useful, many thanks for the writeup. I'd note that I've been using Vanguard for regular investments and found website annoying and the customer support quite bad; there would be long periods where they wouldn't offer any because things were "too crowded". I think most people underestimate the value of customer support, in part because it is most valuable in the tail end situations.
Some quick questions: - Are there any simple ways of making investments in these accounts that offer 2x leverage or more? Are there things here that you'd recommend? - Do you have an intuition around when one should make a Donor-Advised Fund? If there are no minimums, should you set one up once you hit, say, $5K in donations that won't be spent a given tax year? - How easy is it for others to invest in one's Donor-Advised Fund? Like, would it be really easy to set up your own version of EA Funds?
"Do you have an intuition around when one should make a Donor-Advised Fund?"
The reason I, personally, opened a DAF was to make it dead simple to donate appreciated stock.
If you're not familiar: you can give a lot more to charity, at the same cost to you, if you gift stock that's gone up in price instead of cash. For example, say you bought stock for $1k and has appreciated to $10k. (Lucky you!) If you sold it to donate it to charity, you first have to pay capital gains tax on the $9k, which is 35% or about $3k. So the charity only gets $7k. If instead, you gift the stock directly: you don't pay taxes, and neither does the charity. Basically, the US Govt matches your donation. Great deal, right?
The catch is: actually gifting stock is really annoying! When I was donating TSLA shares to GiveWell I had to literally fax a piece of paper telling them which shares to take out of my account. A DAF is much simpler; I just click some buttons from my Schwab investment account and the stock lands and gets sold in my Schwab Charitable DAF. There are other great reasons to open a DAF too -- but making this tax optimization really easy is why I went for it.
DAFs do make it much easier to donate appreciated stock, and this is good advice. However, if you want to make a donation of appreciated assests and you aren't able to set up a DAF, EA Funds accepts donations of stock (in the US) and cryptocurrency (US, UK, and NL) for donations of more than $1000 (no promises that you won't have to send a fax to your broker if you want to donate stock, but in general that hasn't been the case for most of our donors who are donating from Vanguard etc).
Thanks for sharing your experience with Vanguard! That aligns with anecdotes I've heard about Vanguard's brokerage service.
Are there any simple ways of making investments in these accounts that offer 2x leverage or more? Are there things here that you'd recommend?
I just published something about DAF investing strategies: https://mdickens.me/2021/04/06/investing_strategies_DAF/ In this section, I talk about leveraged ETFs. I believe the only way to invest with leverage in a DAF is through a leveraged ETF or mutual fund, although I've heard conflicting things about what the actual legal requirements are. In general, I don't think leveraged ETFs are good investments.
Do you have an intuition around when one should make a Donor-Advised Fund?
If you want to use leverage, probably never. (Or just use it to convert stock into cash for donations, as akrolsmir described.) Otherwise, you want to have at least $10,000 or so, otherwise the minimum fee will eat too large a % of your assets each year. (Schwab and Fidelity both have a $100 minimum fee.)
How easy is it for others to invest in one's Donor-Advised Fund?
It's definitely possible. I personally don't have my own DAF, I use my parents' DAF. I'm a full authorized user on the account, which means I had to connect my Fidelity account to the DAF. If you don't care about managing anything and just want to donate to the DAF, I would think that should be pretty easy, but I haven't tried it. I think it should be as simple as writing a check to Fidelity Charitable with a note that the money is for that particular DAF.
One important factor when looking for a DAF is whether it restricts your donations to only public charities as defined by the IRS and will not let you direct donations to private foundations. Both of these can be approved as 501(c)3) non-profits. I believe the vast majority of non-profits are classified as private foundations. My son started a non-profit that was initially classified by the IRS as a private foundation. He can file in a future year after having actual experience and try to get classified as a public charity. In his initial fund raising several of our friends with DAF's could not use their funds to make donations while other friends using other providers were allowed to make donations to his private foundations. I have my own 501(c)(3) private foundation and I can donate to any approved non-profit, public or private. Investment options, fees and customer service are all important but the real value is in making donations to the charities you want to support.
Public charity status is the norm -- most charities should be able to achieve it fairly easily unless perhaps dependent on a very small number of donors for the bulk of funds.
You may want to correct your Vanguard fee schedule; they charge a $250 “maintenance fee” on account balances under $25,000. This appears to be on top of the 0.60% fee, meaning that accounts that ultimately decline in value suffer total annual fees bordering on ~2% . This seems to make Schwab a much better option for accounts that may ultimately decline below $25k, right?
See “Maintenance Fee” at https://www.vanguardcharitable.org/company-policies/policies-and-guidelines
Thanks so much for this great post! I've had Schwab Charitable for about a year now, and has been very smooth. Also potentially worth noting, one can transfer between DAFs across various providers, so if the size of a DAF were to change, I think it should be feasible to move to one with better options/fees as needed.
Vanguard's website does not state that they can accept cryptocurrency, but I confirmed with a representative that they take donations of cryptocurrency if the value of the contribution is at least $50,000.
Schwab also told me (in Nov 2020) that they only accept cryptocurrency if the contribution is >$50,000, and their vendors charge a 1% fee on Bitcoin and a $3,500 flat fee for Ethereum. I spoke to Fidelity Charitable who told me they had no minimum contribution for cryptocurrency, but I didn't inquire about fees.
Just got off the phone with Fidelity Charitable, they accept ETH with no minimums. (Also the two agents I spoke to were smart and efficient, average wait time of 8 min)
another relevant minimum is minimum account activity—have you or others incorporated this into your comparisons? for example, it looks like fidelity requires disbursement of 5% of net assets per year (averaged over 5 year periods), whereas vanguard requires at least one $500 grant every 30 months.
Where are you getting that info? I thought Fidelity Charitable had no distribution requirement. Distribution requirement is definitely relevant if there is one.
fidelity: their "open an account" page (https://www.fidelitycharitable.org/open-account.html) directs to their program guidelines (https://www.fidelitycharitable.org/content/dam/fc-public/docs/programs/fidelity-charitable-program-guidelines.pdf), with the relevant info on page 17. on closer inspection, it looks like disbursement of 5% of net assets per year could be a policy for fidelity charitable as a whole, not necessarily for each individual account. even so, they claim to require active grantmaking and say they will start making grants from any account that hasn't disbursed anything for two years (top of page 18). i don't know if this policy is commonly applied, but at the very least it's a risk.
vanguard: their "open an account" page (https://www.vanguardcharitable.org/open-an-account/consent/) has a link to their policies and guidelines, with the relevant information under heading "minimums, timing, and amounts", subheading "minimum account activity".
i didn't see any minimum activity info on the schwab website and haven't had a chance to check others.
even so, they claim to require active grantmaking and say they will start making grants from any account that hasn't disbursed anything for two years (top of page 18). i don't know if this policy is commonly applied, but at the very least it's a risk.
After a number of years Fidelity required me to make a $50 disbursement, so I think this requirement might be de minimis.
Fantastic analysis, wish I had this prior to making my decision. Back in the day both Fidelity and Schwab had a $5K minimum and Fidelity had a $50 minimum contribution whereas Schwab had a $500 minimum, which is why I went with Fidelity. Glad to see they made these improvements.
Going off of Dan's comment, if a Fidelity (or Schwab) account is at $25K or more, would you recommend switching over to Vanguard given the better fees and investment options?
Can you clarify why you'd create a DAF instead of just donating directly to a high-impact charity? Using EA Funds as a baseline, I'd be interested in what value a DAF provides over just donating there.
Excellent, helpful and concise, thanks so much Michael! Perhaps include a minimum balance line to your Appendix just under "minimum fees" section. As you noted, Vanguard has a $25k minimum balance, effectively making their minimum annual fee $150. Fidelity has no initial minimum deposit and no minimum balance, which may be helpful when opening an account and managing large grants that bring the account balance below the minimum between contributions.
Does this apply to US only? If so, could be good to say at the very top.
(I haven't read the post, but I'm very excited that such a resource exists!)
Also, if anyone is up for it, I think a resource for DAF providers in other countries would seem useful as well
Yeah this is for US only. I actually thought I had said that in the post, but looks like I forgot to! I'll edit it.
You said it in the "My process" section, but not earlier.
Great post. One more resource that EAs should be aware of is Charitable Solutions LLC. They facilitate large (>$250k) DAF donations of exotic assets like restricted stock, LP interests, art, etc.
This looks really useful, many thanks for the writeup. I'd note that I've been using Vanguard for regular investments and found website annoying and the customer support quite bad; there would be long periods where they wouldn't offer any because things were "too crowded". I think most people underestimate the value of customer support, in part because it is most valuable in the tail end situations.
Some quick questions:
- Are there any simple ways of making investments in these accounts that offer 2x leverage or more? Are there things here that you'd recommend?
- Do you have an intuition around when one should make a Donor-Advised Fund? If there are no minimums, should you set one up once you hit, say, $5K in donations that won't be spent a given tax year?
- How easy is it for others to invest in one's Donor-Advised Fund? Like, would it be really easy to set up your own version of EA Funds?
"Do you have an intuition around when one should make a Donor-Advised Fund?"
The reason I, personally, opened a DAF was to make it dead simple to donate appreciated stock.
If you're not familiar: you can give a lot more to charity, at the same cost to you, if you gift stock that's gone up in price instead of cash. For example, say you bought stock for $1k and has appreciated to $10k. (Lucky you!) If you sold it to donate it to charity, you first have to pay capital gains tax on the $9k, which is 35% or about $3k. So the charity only gets $7k. If instead, you gift the stock directly: you don't pay taxes, and neither does the charity. Basically, the US Govt matches your donation. Great deal, right?
The catch is: actually gifting stock is really annoying! When I was donating TSLA shares to GiveWell I had to literally fax a piece of paper telling them which shares to take out of my account. A DAF is much simpler; I just click some buttons from my Schwab investment account and the stock lands and gets sold in my Schwab Charitable DAF. There are other great reasons to open a DAF too -- but making this tax optimization really easy is why I went for it.
DAFs do make it much easier to donate appreciated stock, and this is good advice. However, if you want to make a donation of appreciated assests and you aren't able to set up a DAF, EA Funds accepts donations of stock (in the US) and cryptocurrency (US, UK, and NL) for donations of more than $1000 (no promises that you won't have to send a fax to your broker if you want to donate stock, but in general that hasn't been the case for most of our donors who are donating from Vanguard etc).
Thanks for sharing your experience with Vanguard! That aligns with anecdotes I've heard about Vanguard's brokerage service.
I just published something about DAF investing strategies: https://mdickens.me/2021/04/06/investing_strategies_DAF/ In this section, I talk about leveraged ETFs. I believe the only way to invest with leverage in a DAF is through a leveraged ETF or mutual fund, although I've heard conflicting things about what the actual legal requirements are. In general, I don't think leveraged ETFs are good investments.
If you want to use leverage, probably never. (Or just use it to convert stock into cash for donations, as akrolsmir described.) Otherwise, you want to have at least $10,000 or so, otherwise the minimum fee will eat too large a % of your assets each year. (Schwab and Fidelity both have a $100 minimum fee.)
It's definitely possible. I personally don't have my own DAF, I use my parents' DAF. I'm a full authorized user on the account, which means I had to connect my Fidelity account to the DAF. If you don't care about managing anything and just want to donate to the DAF, I would think that should be pretty easy, but I haven't tried it. I think it should be as simple as writing a check to Fidelity Charitable with a note that the money is for that particular DAF.
One important factor when looking for a DAF is whether it restricts your donations to only public charities as defined by the IRS and will not let you direct donations to private foundations. Both of these can be approved as 501(c)3) non-profits. I believe the vast majority of non-profits are classified as private foundations. My son started a non-profit that was initially classified by the IRS as a private foundation. He can file in a future year after having actual experience and try to get classified as a public charity. In his initial fund raising several of our friends with DAF's could not use their funds to make donations while other friends using other providers were allowed to make donations to his private foundations. I have my own 501(c)(3) private foundation and I can donate to any approved non-profit, public or private. Investment options, fees and customer service are all important but the real value is in making donations to the charities you want to support.
Public charity status is the norm -- most charities should be able to achieve it fairly easily unless perhaps dependent on a very small number of donors for the bulk of funds.
You may want to correct your Vanguard fee schedule; they charge a $250 “maintenance fee” on account balances under $25,000. This appears to be on top of the 0.60% fee, meaning that accounts that ultimately decline in value suffer total annual fees bordering on ~2% . This seems to make Schwab a much better option for accounts that may ultimately decline below $25k, right?
See “Maintenance Fee” at https://www.vanguardcharitable.org/company-policies/policies-and-guidelines
Thanks for pointing this out! I updated the post.
Thanks so much for this great post! I've had Schwab Charitable for about a year now, and has been very smooth. Also potentially worth noting, one can transfer between DAFs across various providers, so if the size of a DAF were to change, I think it should be feasible to move to one with better options/fees as needed.
Schwab also told me (in Nov 2020) that they only accept cryptocurrency if the contribution is >$50,000, and their vendors charge a 1% fee on Bitcoin and a $3,500 flat fee for Ethereum. I spoke to Fidelity Charitable who told me they had no minimum contribution for cryptocurrency, but I didn't inquire about fees.
FYI @MichaelDickens I just heard from Vanguard Charitable:
> At this time, Vanguard Charitable only accepts contributions of Bitcoin and Bitcoin Cash that are valued over $100,000.00.
Might be worth mentioning in the post.
Just got off the phone with Fidelity Charitable, they accept ETH with no minimums. (Also the two agents I spoke to were smart and efficient, average wait time of 8 min)
another relevant minimum is minimum account activity—have you or others incorporated this into your comparisons? for example, it looks like fidelity requires disbursement of 5% of net assets per year (averaged over 5 year periods), whereas vanguard requires at least one $500 grant every 30 months.
Where are you getting that info? I thought Fidelity Charitable had no distribution requirement. Distribution requirement is definitely relevant if there is one.
fidelity: their "open an account" page (https://www.fidelitycharitable.org/open-account.html) directs to their program guidelines (https://www.fidelitycharitable.org/content/dam/fc-public/docs/programs/fidelity-charitable-program-guidelines.pdf), with the relevant info on page 17. on closer inspection, it looks like disbursement of 5% of net assets per year could be a policy for fidelity charitable as a whole, not necessarily for each individual account. even so, they claim to require active grantmaking and say they will start making grants from any account that hasn't disbursed anything for two years (top of page 18). i don't know if this policy is commonly applied, but at the very least it's a risk.
vanguard: their "open an account" page (https://www.vanguardcharitable.org/open-an-account/consent/) has a link to their policies and guidelines, with the relevant information under heading "minimums, timing, and amounts", subheading "minimum account activity".
i didn't see any minimum activity info on the schwab website and haven't had a chance to check others.
After a number of years Fidelity required me to make a $50 disbursement, so I think this requirement might be de minimis.
Fantastic analysis, wish I had this prior to making my decision. Back in the day both Fidelity and Schwab had a $5K minimum and Fidelity had a $50 minimum contribution whereas Schwab had a $500 minimum, which is why I went with Fidelity. Glad to see they made these improvements.
Going off of Dan's comment, if a Fidelity (or Schwab) account is at $25K or more, would you recommend switching over to Vanguard given the better fees and investment options?
Unless you're putting a lot of work into optimizing your DAF investments (like I describe here), Fidelity is pretty much just as good as Vanguard.
Love that you’re writing a comprehensive write up about navigating DAFs, Michael.
Another one I’ll put on your radar is Groundswell (www.groundswell.io).
Full disclosure, I work for them and I would consider it comparable to Charityvest in regards to price and the ability to accept stock.
We are focused on offering DAFs as an employee benefit, although anyone can download and use Groundswell as they would with Charityvest.
This was really helpful, thank you!
Can you clarify why you'd create a DAF instead of just donating directly to a high-impact charity? Using EA Funds as a baseline, I'd be interested in what value a DAF provides over just donating there.
That's a complicated question, but in short, if you believe that there will be better donation opportunities in the future, you might use a DAF.
Excellent, helpful and concise, thanks so much Michael! Perhaps include a minimum balance line to your Appendix just under "minimum fees" section. As you noted, Vanguard has a $25k minimum balance, effectively making their minimum annual fee $150. Fidelity has no initial minimum deposit and no minimum balance, which may be helpful when opening an account and managing large grants that bring the account balance below the minimum between contributions.