Tax-smart planning if using a donor-advised fund

A donor-advised fund (DAF) is a popular charitable giving vehicle that allows donors to make a charitable contribution to an eligible fund,¹ receive an immediate tax deduction, and then recommend grants from the DAF to their favorite charities over time. Donors can contribute to the fund as frequently as they like, and then recommend grants to their favorite charities whenever it makes sense for them.

SEI offers a DAF called the SEI Giving Fund. The SEI Giving fund is administered by Renaissance Charitable Foundation.

How does a donor-advised fund work?

Donors receive an immediate tax benefit by contributing assets and/or cash to the DAF. If donating appreciated assets (held for more than one year), the donor gets to deduct the fair market value of the assets, subject to certain limitations,² and avoids the capital gains tax on appreciated assets. Donor-advised funds are designed to allow donors and their families to meet philanthropic goals for generations to come.

Donating appreciated assets to a DAF

Example: You have owned XYZ stock for a long time; it has a fair market value of $15,000 and a cost basis of $5,000. If you were to sell the stock, that would be a $10,000 long-term capital gain and at a 20% tax rate,³ $2,000 in taxes due.

• FMV: $15,000
• Cost: $5,000
• Gain: $10,000 * 20% tax rate = $2,000 in tax

If you donate the stock to a DAF such as the SEI Giving Fund, the stock will be sold by the DAF, a charitable entity. The proceeds will be invested into an available mutual fund strategy. You can save $2,000 in taxes and receive a $15,000 charitable contribution deduction.⁴

Potential benefits of a DAF

• Receive an immediate income tax deduction
• Simplify your charitable giving—no tax reporting is required by the donor as opposed to a private foundation
• Support one or more charities
• Give anonymously
• Flexibility—if you donate securities that have appreciated significantly over time to a DAF and you avoid capital gains tax, receive the immediate benefit of a charitable deduction while giving yourself time to decide where to direct funds

What can you contribute?

• Cash
• Mutual funds
• Exchange-traded funds (ETFs)
• Publicly traded stocks or bonds
• Real estate, closely held stock, and other hard-to-value assets may also be contributed after review and approval by the foundation⁵
• The minimum initial donation to the SEI Giving Fund is $5,000

Tax planning ideas to consider:

• Donate appreciated securities—the capital gain is not recognized for tax purposes.
• Donate mutual fund shares estimated to pay out large capital gain distributions. The burden of mutual fund capital gain distributions is shared by all investors in a fund, even those who did not sell shares. By donating shares of these funds, the investor may bypass the capital gains tax assessed on a distribution.
• “Front load” charitable contributions in a high-income year. For example, pair a DAF contribution with a Roth conversion, a bonus, or a stock option exercise, if you realized capital gains or sold real estate or a business. Roth conversions are considered income and are generally taxable; one way to help offset the Roth conversion income is to offset the conversion with charitable contributions.
• Lump and clump strategy for itemized deductions. You could lump multiple years of contributions into one year and clump the contributions into a donor-advised fund, thereby increasing itemized tax deductions in an effort to hurdle the standard deduction.

National Day of Giving – November 28, 2023

National Day of Giving encourages giving back. Every year, on the Tuesday after Thanksgiving, people take the time to kick off the holiday season by giving back to their community. Whether it is donating money to a charitable cause or volunteering, Giving Tuesday is a day to benefit the community.

Donating to your donor-advised fund can be a great way to participate in the National Day of Giving.

Reach out to your financial advisor to discuss if a donor-advised fund fits into your financial future.

1. To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual.
2. For individuals, the maximum income tax deduction when gifting cash to a DAF is 60% of adjusted gross income (AGI) and up to 30% of AGI for contributions of appreciated assets held for more than one year. You may carry forward deductions exceeding AGI limits for up to five years. Source: “Contributions You Can Deduct,” IRS Publication 526.
3. Showing the highest long-term capital gains tax rate, excluding the 3.8% net investment income tax.
4. The IRS offers taxpayers the opportunity to take the standard deduction or itemize.
5. Check with your DAF provider for eligibility and other requirements.

Information provided by Independent Advisor Solutions by SEI, a strategic business unit of SEI Investments Company (SEI). Your financial advisor is not affiliated with SEI^® or its subsidiaries. Data as of September 30, 2023.

Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. 

Investing involves risk including possible loss of principal. 

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information is for educational purposes only and should not be interpreted as research, legal opinion, or advice.

Certain information contained herein has been provided to SEI by an unaffiliated third party. SEI cannot guarantee the accuracy or completeness of the information and assumes no responsibility or liability for its incompleteness or inaccuracy.

Information provided as examples does not constitute investment recommendations or advice.

SEI Giving Fund is a program of the Renaissance Charitable Foundation Inc. Contributions are irrevocable. Once the Foundation accepts a contribution, the gift may not be refunded. All accepted gifts become the exclusive legal property of the Foundation.

Renaissance Charitable Foundation Inc. is registered to solicit contributions in every state where such registration is required including the District of Columbia. The following disclosure notices are required by state laws.

Florida: A copy of the official registration and financial information may be obtained from the Florida Division of Consumer Services by calling toll-free 800-435-7352 within the state. Registration does not imply endorsement, approval, or recommendation by the state of Florida. Our Florida registration number is ch13085.

Maryland: A copy of the current financial statement of Renaissance Charitable Foundation Inc. is available by writing 8910 Purdue Rd., Suite 555, Indianapolis, IN 46268, or by calling 800-918-3650. Documents and information submitted under the Maryland Solicitations Act are also available, for the cost of postage and copies, from the Maryland Secretary of State, State House, Annapolis MD 21401, 410-974-5534.

Mississippi: The official registration and financial information of Renaissance Charitable Foundation Inc. may be obtained from the Mississippi Secretary of State’s office by calling 888-236-6167. Registration by the Secretary of State does not imply endorsement by the Secretary of State.

New Jersey: Information filed with The attorney general concerning this charitable solicitation and the percentage of contributions received by the charity during the last reporting period that were dedicated to The charitable purpose may be obtained from the attorney general of the state of New Jersey by calling 973-504-6215 and is available on the internet at http://www.state.nj.us/lps/ca/charfrm.htm. Registration with the attorney general does not imply endorsement.

New York: A copy of the current financial statement of Renaissance Charitable Foundation Inc. may be obtained by writing 8910 Purdue Rd., Suite 555, Indianapolis, IN 46268, or by writing the New York State Attorney General’s Charities Bureau, Attn: FOIL Officer, 120 Broadway, New York, NY 10271.

North Carolina: Financial information about this organization and a copy of its license are available from the North Carolina State Solicitation Licensing Branch at 919-807-2214. The license is not an endorsement by the state.

Pennsylvania: The official registration and financial information of Renaissance Charitable Foundation Inc. may be obtained from the Pennsylvania Department of State by calling toll-free within Pennsylvania, 800-732-0999. Registration does not imply endorsement.

Virginia: A copy of the current financial statement of Renaissance Charitable Foundation Inc. is available upon request by writing the Office of Consumer Affairs, Department of Agriculture and Consumer Services, P.O. Box 1163, Richmond, VA 23218.

Washington: A copy of the current financial statement of Renaissance Charitable Foundation Inc. may be obtained from the Office of the Washington Secretary of State by calling toll-free 800-332-4483.

West Virginia: West Virginia residents may obtain a summary of the registration and financial documents from the Secretary of State, State Capitol, Charleston, WV 25305. Registration does not imply endorsement.

Wisconsin: A copy of the latest financial report filed with the Wisconsin Department of Regulation and Licensing may be obtained.