Charity - Donate using Charity Mutual Funds - Part-1

[This post is written and copyrighted by FIRE Finance (]

"We make a living by what we earn - we make a life by what we give." - Winston Churchill

Since we donate quite a substantial part of our earnings to charity, we thought we might share this interesting finding about Donor Advised Funds with our readers. Donor Advised or Charity Funds are a new type of mutual fund investment that has been designed for charity-minded investors. They combine immediate tax benefits with the ability to support one's favorite charities on a flexible time line. The main highlights of the benefits are:

  • One becomes eligible for immediate tax deduction (based on your IRS limits that same year) once the money is deposited in the giving account. Then you may support your favorite charities on a flexible time line as suitable to you. Though your tax deduction is immediate the money may go the charity at a later date.
  • Once the money is deposited in the charity fund, you can invest it in a combination of investment pools comprising of mutual funds, thus providing more money for charities depending on the performance of the funds.
    • To quote David Bach, from the book "The Automatic Millionaire" - "One of the neat things about these funds is the tax advantages they offer to people who want to donate securities that have substantially appreciated in value. Say, for instance, you bought a stock or mutual fund whose price subsequently soared. Instead of selling it, paying a hefty capital gains tax, and then donating whatever was left over, you can simply deposit the stock into a charity fund. While you take your tax deduction immediately, the investment can continue to grow tax-free until you direct the fund to cut a check to a selected charity - a check that is bound to be much larger than what the charity would have received after a straight sale. "
    • If you have the habit of tithing i.e. putting away some percentage of your salary every month to be given away to a charity but are not sure to which charity you want to donate yet, these funds are a great way to make that money grow yet claim immediate tax benefits.
    • Also donor funds allows more than one person to contribute to the fund. It creates an avenue for the whole family to contribute together at a single place, thus creating a wealth pool which will make a lasting difference when donated to the right charity.
    • Most of the firms offering the charity or donor funds also provide tools to research the various charities that are defined as : "These are organizations that are exempt under Section 501 of the Internal Revenue Code and applicable regulations and IRS authority, and are described as "public charities" in Section 509(a)(1) or 509(a)(2), or are private operating foundations as described in Section 4942(j)(3), of the Code and applicable regulations and IRS authority."

NOTE: Once you invest in any of the donor or charity funds, these are irrevocable deposits. The money has to be given away to a charity and you cannot get it back for your personal use.

Continued in Part 2.

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