What Is a Donor-Advised Fund and How Does It Work?

Here's how donor-advised funds might help you cut your tax bill and give back to the community.
What Are Donor-Advised Funds? How DAFs Work

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What is a donor-advised fund?

A donor-advised fund, or DAF, is an account where you can deposit assets for donation to charity over time. The donor gets a tax deduction for making contributions to the donor-advised fund. A sponsoring organization manages the account; the donor recommends how to invest the assets and where to donate them. Technically, once assets are deposited into a donor-advised fund, the sponsoring organization has legal control over them. But as long as you choose a charity that's recognized by the IRS as a U.S. charitable organization, the sponsoring organization will usually use your charities of choice.

What are the benefits of a donor-advised fund?

In addition to providing financial support to charities, donor-advised funds can provide more immediate income tax deductions for donors, as well as potentially reduce capital gains taxes and estate taxes. Possible benefits of a donor-advised fund include:

Tax deductions

You can claim a tax deduction in the year you contribute assets to the donor-advised fund rather than in the year the contribution goes to the charity. For example, if you typically donate $3,000 a month to charity ($36,000 a year), you could essentially prepay for, say, five years’ worth of donations by putting $180,000 in a donor-advised fund now.

The donor-advised fund would use the money to disburse $3,000 a month to the charity as usual, but you would get a $180,000 tax deduction this year instead of a $36,000 deduction every year for the next five years. Getting a giant deduction in one year could be worth more than a smaller $36,000 annual deduction.

Lower capital gains taxes

You won’t pay capital gains taxes on assets you put in a donor-advised fund, and if you donate assets that are worth more than what you paid for them, you typically can deduct the current market value of the asset rather than what you originally paid for the asset.

Reduced estate tax

Few people have to pay estate taxes (in 2021, these taxes apply only to those with estates of more than $11.7 million). If you’re one of those few, putting money in a donor-advised fund can reduce the size of your taxable estate. How? Assets you put into a donor-advised fund aren’t subject to estate taxes, so they don’t count toward your total estate value.

A legacy of giving

When estate planning, you can make a bequest in your will so any remaining assets in your donor-advised fund are donated to your charities of choice after you die. There’s also the option to pass the assets to heirs so they can take the philanthropy mantle and give grants to charities they want to support.


Some individuals gravitate toward donor-advised funds because of the anonymity these funds provide. You can choose to withhold your identity and gift grants anonymously if you don’t want to be solicited for future donations or don’t want your donations to become public knowledge.

What can you contribute to a donor-advised fund?

Depending on the supporting organization and account type you choose, your minimal initial contribution could range anywhere from $0 to $250,000. You can contribute different kinds of assets to a donor-advised fund, such as:

  • Cash.

  • Stocks, bonds and mutual fund shares.

  • Money in IRAs and 401(k)s.

  • Private company stock.

  • Cryptocurrencies.

  • Life insurance.

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How to invest in a donor-advised fund

Step 1. Compare donor-advised fund sponsoring organizations

There are many different kinds of sponsoring organizations. Commercial donor-advised funds, for example, are run by nonprofit arms of national financial-services firms. We highlight three of them in the table below. As it shows, donor-advised funds make money from fees.

Fidelity Charitable

Schwab Charitable

Vanguard Charitable

Minimum initial contribution


$0 for Core accounts; $250,000 for professionally managed accounts.


Minimum for additional contributions




Minimum grant to charity




Annual admin fee

Greater of 0.60% or $100 (tiered after $500,000).

Greater of 0.60% or $100 (tiered after $500,000).

0.60% (tiered after $500,000).

Investment fees

0.015% to 1.04%.

0.03% to 0.84%.

0.03% to 1.23%.

Maintenance fee



$250/year if below $25,000 in February.

Step 2. Contribute cash or other assets to the donor-advised fund

You can put in cash, stocks or other investments, such as cryptocurrency or even your ownership in a private business. Note: Contributions are irrevocable, meaning that once you contribute the assets, you can’t get them out again.

Step 3. Itemize your taxes to get the tax break

That means filling out Schedule A when you do your taxes and making sure that your itemized deductions exceed the standard deduction to get the most bang for your donated bucks. (Learn more about how to decide whether it's worth it to itemize your taxes this year.) You receive your tax break in the year you contribute to your donor advised fund.

In case you’re curious about limitations on deductions, you can deduct up to 60% of your adjusted gross income for cash contributions. If you’re contributing securities or appreciating assets to your donor-advised fund, you can deduct up to 30% of your AGI. If you aren’t able to get your full deduction in a single year, you typically have five years to claim the unused deductions.

Step 4. Help your donation grow

Although the sponsoring organization controls the money in the donor-advised fund and the investment options you choose from, you get to recommend which investments to use.

The assets in a donor-advised fund are then invested and can appreciate tax-free until you’re ready to donate them to your charity of choice. This could be within two years or 10; it’s entirely up to you. Unlike with private funds, there is no mandatory distribution date, meaning the funds could sit in the donor-advised fund for years (or indefinitely) before charities receive it. However, some providers have policies that require you to disburse funds to charity regularly.

What are the advantages of waiting to disburse funds to charities? Some people prefer to wait for the investments to mature so they can give a larger amount. Others want the tax deduction immediately but need time to select charities they want to give to.

Step 5. Pick charities to support

That’s the goal of the entire process. You can support pretty much any IRS-qualified public charity. Typically, the entity that sponsors the donor-advised fund is responsible for checking out charities to ensure that the money goes to legit ones.

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