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Contributing to Charity? Consider a Donor-Advised Fund

Published: Sep 10, 2013 1 min read

Q: I've been thinking about starting a donor-advised fund. What are the pros and cons? -- Anne G., Fort Worth, Texas

A: If you have several thousand dollars you'd like to set aside for charity, a donor-advised fund is a great idea, says Northbrook, Ill., financial planner Steve O'Hara.

You get an immediate tax break for putting money in a DAF, but you can take your time -- years, if you want -- deciding which nonprofits get any funds. Meanwhile, investments in the DAF grow tax-free.

You can open an account at firms such as Fidelity and Schwab, or at community foundations like the Chicago Community Trust; the initial minimum is usually $5,000 or $10,000.

Potential drawbacks are few. Contributions to DAFs are irrevocable; for smaller accounts, investment choices are usually limited. And some community foundations restrict grants to a geographic area.