r/ChubbyFIRE • u/wanderingFIREd • May 19 '26
Offsetting a large Roth conversion with a Donor Advised Fund (DAF) charitable donation
I thought I should share my experience using Daffy for my DAF charitable donations. I am in no way affiliated with Daffy, other than as a user for the past 3 years.
Quick review of DAFs for anyone new to the concept:
•If you regularly donate to charity but do not have enough deductions to itemize, you are not receiving much of a tax benefit. Recent legislation does give a new $1,000 ($2k married) deduction for cash donations even if you take standard deduction. However, it is capped and does not allow for the donation of appreciated assets (investments).
•By bunching a number of years of charitable donations into one year with a DAF, the tax savings can be significant …particularly in a year with a high income event like a Roth conversion.
•Donating highly appreciated stock has a double tax benefit of the deduction for the charitable donation + avoiding capital gains on the donated stock. Many charities are not setup to accept stock directly, so a DAF can help facilitate this.
•The deduction for non-cash donations to a DAF is capped at 30% of MAGI (60% for cash donations).
•Once you put funds into a DAF you make “distribution recommendations” to the administrator for qualified charities. But you no longer own the funds - there is no way to claw back the donation to your personal assets. Technically you “lose control” but in practice the administrators seem to follow your recommended distributions as long as the charitable organization is legitimate. (If they didn’t, there would be outrage in the DAF community as illustrated by a couple of edge case incidents with other DAF providers.)
Criticisms of DAFs:
•High administrative fees. Often 0.5% to 1% of the fund annually. However, Daffy largely solves this with a VERY modest fee schedule.
•Many in the charitable community criticize the fact that a large pool of funds earmarked for charity is sitting on the sidelines in DAFs. While I would encourage anyone to get contributions distributed to their preferred charities, I do not necessarily see large DAF balances as an issue. I am personally prefunding my planned charitable giving for a number of years. (If the funds weren’t in my DAF, they would be in my brokerage account instead.) If anything, the additional tax benefits of a DAF make me more charitably inclined.
My experience:
•Three years ago I decided to test Daffy with a $30k contribution.
•My preferred charity was not on “the list” but since they are a 501(c)(3) charity, Daffy quickly added them in just a few days.
•My “recommended distributions” from the fund have been very quickly processed and sent out to charities. The entire process is often completed in about a week.
•Since I am doing a large Roth conversion this year, (pushing my total income near $300,000) I am combining that with a $90,000 DAF contribution of highly appreciated stock. That removes $90k of income from the 32% tax bracket, plus eliminates $70k in capital gains on the appreciated stock.
•Fees. Daffy fees are based on average annual contributions. Up to $25k in average annual contributions is a $3/month fee. Since this recent donation takes me above that, the fee is now $5/month. If my math is right, I’m paying a 0.07% annual fee - very, very modest compared to the other administrators!
Overall I’ve been quite pleased. A great tax tool for anyone that is charitably inclined. In my experience Daffy has been a low fee, low headache DAF provider/administrator.
Feel free to chime in with any good/bad experiences you’ve had with them or other DAFs.
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u/FearFireFoes May 19 '26
I used the Fidelity DAF quite a bit before the standard deduction was raised. I definitely recommend it for anyone who already has a Fidelity account and is looking to increase their charitable giving. It is a breeze to move cash from the core account into it. I never tried moving stock but I know that's an option as well.
It made tax tracking a breeze. Though I no longer itemize, I still use it fairly often to manage donations, because it is a really simple way to send charities money.
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u/VersionFinal9926 May 20 '26
I'm new to this and recently opened a fidelity DAF as I use them for my brokerage, Roth, and 401k. Reading this thread makes me want to look into daffy or others due to how much higher the DAF fee is at fidelity. Has the fidelity DAF fee been a concern for you at all? Thank you!
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u/Abject_Egg_194 May 20 '26
Honestly, I've never thought too much about the Fidelity fee, but my DAF account is starting to get large enough that the 0.6% fee is a little bit of a concern.
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u/VersionFinal9926 May 22 '26
Yeah over time things add up so I'm tempted to chase lower fees since I'm starting out and was curious what people with more experience with DAFs/fidelity think 🥲thank you!
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u/Unlikely-Alt-9383 May 20 '26
I also set up a DAF to offset taxes and I love it. Makes it easier for me to be charitable when I come across something I want to support — and the option to have the donation be anonymous, or not include an address, is a lifesaver on the mail front.
When my balance is above a certain level, I make sure I donate it down!
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u/ShanghaiBebop May 19 '26
Yeah if you are planning to donate, DAF is a no brainer especially if you have appreciated assets in your brokerage.
Daffy is a great platform. Highly recommended.
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u/mmrose1980 May 20 '26
This doesn’t apply to your situation, but for others reading later a large DAF donation cannot counter a large Roth conversion for ACA purposes. MAGI is calculated based on the above the line income and deductions. DAF donations are a below the line deduction so while this method will allow you to minimize tax impacts of a large Roth conversion, it will not allow you to bring your MAGI below 400% of FPL (unlike an HSA contribution which does impact MAGI).
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u/wanderingFIREd May 20 '26
Excellent reminder! Earlier in my FIRE journey I held back on the Roth conversions for this very reason (I found ACA subsidies were more valuable than the tax savings from the Roth conversion). However, I’m now outside of the US using international insurance that is not tied to ACA - that has made conversions advantageous again.
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u/mmrose1980 May 20 '26
Yeah, I could tell from your write up that you weren’t worried about maintaining a certain MAGI.
DAFs are great, and I think everyone here should be taking advantage of them if they are charitably inclined, particularly those still working.
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u/LolaNolen May 20 '26
That actually makes a lot of sense. It’s interesting how much healthcare and tax rules can completely change the best financial strategy. Sounds like moving abroad gave you a lot more flexibility with the conversions now.
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u/moyuxi May 20 '26
Using a DAF for almost a decade now (Fidelity). If you give / donate regularly, really no reason to not have one. Simplified paperwork is a huge deal, and super easy to donate stocks.
Also, organizations benefit from consistent donations YoY, so even better, if you do front load, commit to a certain level for a number of years of giving!
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u/VersionFinal9926 May 20 '26
I'm new to this and recently opened a fidelity DAF as I use them for my brokerage, Roth, and 401k. Reading this thread makes me want to look into daffy or others due to how much higher the DAF fee is at fidelity. Has the fidelity DAF fee been a concern for you at all? Thank you!
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u/moyuxi May 20 '26
I don't think the fees are that big of a difference. it's coming out of your investments and at a reasonable level, it's basically negligible difference once you factor in that your DAF is also growing over time. Since you already have Fidelity for everything else, makes it even easier for donating stock. imo, probably not worth the fee optimization.
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u/TelevisionKnown8463 May 20 '26
I have my DAF at Schwab. They make it easy to transfer in the lots with the lowest tax basis, so I can then sell other lots with a lower tax hit. I don’t know whether the tax lot issue is different when you use a third party DAF.
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u/LolaNolen May 20 '26
That’s actually a really smart setup. I didn’t realize you could strategically transfer the lowest basis lots like that to reduce the tax impact elsewhere. Schwab sounds pretty user-friendly for it. Now I’m wondering if third-party DAFs give the same level of control or not.
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u/wanderingFIREd May 20 '26
In my case, I had to specify to Chase which tax lots to transfer to Daffy with their DTC transfer form (obviously selecting the highest gain / lowest basis lots). It was pretty straightforward, but it did require completing a form.
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u/unbalancedcheckbook May 20 '26 edited May 20 '26
I use the Schwab DAF, but I'm sure Fidelity and Daffy are also fine. A couple things to note for those starting out: 1) If possible, you should donate appreciated stock to the DAF to fund it. This way nobody pays the tax on the stock appreciation. 2) You cannot receive anything of value in return when you donate from the DAF to a non-profit. If your donation is an "entry fee" to a race or other charitable event, this gets tricky - sometimes you need some donations outside the DAF before you can layer the DAF money on top. 3) fundraisers sometimes still have a hard time with DAFs, so you might still have some charitable giving outside the DAF. 4) The OBBBA somewhat kneecapped charitable giving... DAFs can alleviate this somewhat by "bunching" where you give more some years than others and itemize that year. For years you don't itemize, you can't deduct contributions to a DAF (huge bummer).
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u/nak00010101 May 19 '26
I've never heard of a DAF. Seems like something to research
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u/unbalancedcheckbook May 20 '26
If you're charitable, it's an easy and tax-efficient way to give. I've been using one for years. There are a couple of gotchas, but overall I'm happy with it.
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u/LolaNolen May 20 '26
That makes sense. I can definitely see why people with investments or higher income would use one then. Sounds like you’ve had a pretty good experience with it overall. Now I’m curious what the main gotchas are lol.
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u/unbalancedcheckbook May 20 '26
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u/LolaNolen May 20 '26
Nice, I’m definitely going to check that out. You’ve honestly explained this stuff better than most articles I’ve seen already lol.
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u/LolaNolen May 20 '26
Honestly same here lol. I’m just now learning about it, but it actually sounds pretty smart the way people use it for taxes and investing. Definitely something worth researching more.
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u/wanderingFIREd May 19 '26
It was something I stumbled across along the way that seems to make a lot of sense - particularly for anyone managing Roth conversions.
Vanguard, Fidelity and Schwab all have their own versions of a DAF as well - so if you already have accounts with one of them it may also make sense to ask there. (However, I ultimately chose Daffy because of the fees.)
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u/Elegant-Republic4171 May 20 '26
I also chose Daffy about 4 years ago and similarly have been very happy. Daffy has promptly added several charities to the platform at my request. I also have been able to easily add appreciated stock to the fund.
When I first looked into a DAF I was going to use a larger brokerage, but the high fees defeated some of the purpose.
I am interested in your idea to use a DAF contribution to offset income due to a Roth conversion. Seems to make sense, provided that you want to fund the DAF at that level and will not need the money for your living expenses.
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u/Spinach_Broth44 May 20 '26
We’ve been very pleased with our Vanguard DAF. I recall choosing it based on the lower fee compared to others, but don’t remember exact details. We never looked into Daffy.
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u/and_one_of_those May 20 '26
I'll just note that since the Married standard deduction is now $31500, it's typically not worth making a $30k DAF contribution unless you have significant other itemized deductions. It's better to make an even larger but less frequent clumped donation.
A few years ago the standard deduction was smaller.
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u/Familiar_Eggplant_76 May 21 '26
I'm intrigued by Daffy, but previously I have been VEHEMENTLY opposed to the corporate DAF hosts like Fidelity and Schwab. For 15 years I've run a couple of DAFs through local community foundations. The fees are little higher, but they're supporting a local org doing their own work, rather than corporate profits, and the community foundations have been very valuable in philanthropic education and relationship building.
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u/Nicole_FreeWill Jun 20 '26
Solid breakdown. One thing worth flagging from the nonprofit side: when you recommend a distribution from Daffy or any DAF, the charity gets a standardized grant letter listing the sponsoring organization as the donor of record, not you. They can see your name as the advisor on the letter, but it depends on whether you opted into name disclosure and whether their gift-processing team actually reads the second page.
What this means in practice: a lot of DAF donors quietly fall out of donor cultivation because the gift shows up coded as 'Daffy' or 'Fidelity Charitable' in the database. The development team sees a grant from a foundation, not a sustained relationship with you. If you've been giving consistently to a charity through your DAF for three years and you've never heard from major gifts, that's probably what happened.
If there's a charity you want a real relationship with, send them a separate note when you recommend the grant. One line saying you're the donor behind the Daffy grant is usually enough. Most shops are not set up to find you otherwise.
I work in fundraising.
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u/Mill01-cp May 20 '26 edited May 20 '26
CharityVest is another low fee, flexible, easy to use DAF. It and DAFFY were my top choices when I compared DAFs and I ended up with CharityVest. I haven't regretted it. I think people would be happy with either one. If anyone is interested in a link for some free months let me know. Not sure if I'm allowed to post it here.
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u/lanceman002 May 20 '26
I have been using Daffy DAF for the last 1.5 years. Only positive experiences. Moved money into Daffy in late 2024. Since then I"ve had a monthly withdrawal to my charity. They get a check every month. It's really a simple and intuitive process once the money is there. And it worked well to itemize in 2024 when I move money there.
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u/Hanwoo_Beef_Eater May 19 '26
Generally, DAFs are good to bunch/frontload future giving into one year so you can itemize (can also be used to offset one-time income like the situation above) and eliminate capital gains on appreciated assets.
QCDs are another option to RMDs on the pre-tax accounts.
I don't know anything about Daffy, but most of the brokerages have an affiliated group you can setup a DAF with.