(FinancialHealth.net) – Charities around the world, whether focused on people or animals, all rely on contributions from donors to keep their operations running. Gifts of cash, property and other assets are commonly donated, but what if there was a better way to get more bang for your buck? Enter donor-advised funds.
Donor-advised funds aren’t necessarily new. The first one was established in the 1930s. But they have been gaining steam over the past several years for a few reasons. Let’s take a look at donor-advised funds and their differences from traditional charitable contributions.
What Are Donor-Advised Funds?
Donor-advised funds are still charitable contributions, but how the money is distributed is much different. Rather than donating actual cash or property directly to a charity throughout the year, donors put the money into a fund account where it gains interest and grows.
As it grows, the account holder can choose when to distribute grants to specific organizations, based on charity needs. There are currently no specific distribution requirements for the funds, so owners can choose to donate as little or as much as they want at any given time.
Are Donor-Advised Funds Tax Deductible?
Yes, because they’re considered a gift to 501(c)(3) charities. If you donate using this method, it qualifies as a tax deduction. The good news is the deduction is immediately allowable; the donor does not have to wait until the money’s actually gifted to a charity. It only needs to be deposited into the fund to be considered a valid tax deduction.
Can You Donate Non-Cash Assets?
Yes, donors can typically invest non-cash assets like stocks. Every investment company has different guidelines in place, but most do accept them, benefitting both the donor and the charities who receive the results.
Because investment companies are skilled at dealing with stocks, and charitable organizations usually aren’t, it eliminates the barrier and frees up more money at the same time. That’s a win-win situation for all involved.
How Much Do You Need to Open a Donor-Advised Fund Account?
The amount to open an account varies depending on the donor’s chosen investment firm. Donors may open some accounts for as little as $5,000; other companies require donations of $25,000 and up to get started.
If you’re considering using a donor-advised fund to manage your charitable contributions, speak to an investment advisor. They can help you determine if it’s the right method for you or if another service will be more helpful. They can also help you research companies thoroughly and choose one that meets your needs.
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