DAFs with Impact Investing Options
A donor-advised fund (DAF) is an investment account established for charitable purposes. When you contribute to a DAF, you are eligible for a charitable deduction (assuming you itemize your deductions on your tax return). The funds within the DAF can be given to the charity immediately or invested to grow tax-free, with the future value given to charity at a later date. Utilizing a DAF can help you maximize your tax savings while meeting your charitable goals. Here is an example:
No DAF: You receive a higher than expected bonus this year. You are projecting that will bump you into a higher tax bracket. You want to both donate to charity and reduce your tax bill. You give $10,000 directly to the charity and receive the tax deduction this year.
Utilizing a DAF: Alternatively, you can contribute $10,000 to a DAF and still take the tax deduction this year. With a DAF, however, you are not required to give the $10,000 to the charity immediately. You can choose to do so, but you may prefer investing the $10,000 in the DAF and letting it grow tax-free for a future, larger donation. Or you could do a little of both - give some to charity now and invest the rest. You don’t receive a tax deduction when the money leaves the DAF, just when the money goes in.
In reality, most people want to give a certain amount to charity each year, whether it is a percentage of their income or a consistent dollar amount. While saving on taxes is not their main motivator, it is certainly a bonus. Utilizing a DAF can accomplish both - the donor can front-load DAF contributions when they will most benefit from the tax deduction (during high-income years). At the same time, they are building a charitable pot of money that can fund their annual giving for years to come (including during retirement when presumably there will be a lesser tax benefit, if any).
Investing within a DAF
While the contribution to a DAF is irrevocable, you maintain the right to advise on how the money in the account is invested. DAF providers have a list of available investment options, much like your 401k. While you may have the option to invest the money in a total stock market index fund, consider instead investing DAF money for a positive impact alongside a financial return. Here is a summary of some of the most popular DAFs along with their current ESG and impact investing options.
DAFs that offer impact investing and ESG options
Fidelity Charitable
Website: https://www.fidelitycharitable.org/
Initial Minimum: None
Account Balance + Additional Contributions: None
Minimum Grant: $50
Annual Admin Fee: Tiered Schedule or $100, whichever is greater. Tiered Schedule starts at .6% on the first $500K and is listed on their website. Investment fees are on top of this.
Impact Investing Options & Fees:
Fidelity® Sustainability U.S. Bond Index Fund (FNDSX) - .10%
Fidelity® U.S. Sustainability Index Fund (FITLX) - .11%
Nuveen Large Cap Responsible Fund (TISCX) -.18%
Fidelity® International Sustainability Index Fund (FNIDX) - .20%
Pax Global Environmental Markets Fund Institutional Class (PGINX) - .91%
Premier Services Available: Yes, for accounts over $5M. Offers access to expanded investment options, including private investments.
Schwab Charitable
Website: https://www.schwabcharitable.org/
Initial Minimum: None
Account Balance + Additional Contributions: None
Minimum Grant: $50
Annual Admin Fee: Tiered Schedule or $100, whichever is greater. Tiered Schedule starts at .6% on the first $500K and is listed on their website. Investment fees are on top of this.
Impact Investing Options & Fees:
Pax Sustainable Allocation Fund Class Institutional (PAXIX) - .67%
Parnassus Core Equity Fund - Institutional Shares (PRILX) - .61%
Nuveen Core Impact Bond Fund R6 Class (TSBIX) - .36%
Vanguard Charitable
Website: https://www.vanguardcharitable.org/
Initial Minimum: $25,000
Additional Contributions: $5,000
Minimum Grant: $500
Annual Admin Fee: Tiered Schedule starting at .6% on the first $500K. Investment fees are on top of this.
Impact Investing Options & Fees:
Vanguard offers two ESG funds and a third fund that combines the two in a 70/30 allocation. Here is my previous write-up and opinion on these funds.
ESG U.S. Stock ETF (ESGV) - .09%
ESG International Stock ETF (VSGX) - .12%
ESG Global Stock - .10%, consists of:
70% - ESG U.S. Stock ETF (ESGV)
30% - ESG International Stock ETF (VSGX)
Vanguard Baillie Gifford Global Positive Impact Stock Fund (VBPIX) - .59%
Impact Assets
Website: https://impactassets.org/
Initial Minimum: $25,000
Additional Contributions: $250
Minimum Grant: $250
Annual Admin Fee: Tiered schedule or $250, whichever is greater. Tiered Schedule starting at 1% on the first $100K. Investment fees are on top of this.
Impact Investing Options & Fees:
ImpactAssets Thematic Impact Funds - invest in private funds and companies addressing a specific thematic issue, including climate change, racial equity, gender equality and community investment. These funds are designed to move dollars into underfunded sectors that are critical to advancing solutions in their specific issue areas, while also offering clients liquidity and competitive returns. Investment minimums may apply.
Model Impact Portfolios - Proprietary blended strategies that are actively managed for impact, performance and liquidity.
Private Impact Opportunities
ESG screened mutual funds and ETFs
Impact Assets was on the Investing Forward Podcast discussing their services.
National Philanthropic Trust
Website: https://nptrust.org
Initial Minimum: $10,000
Additional Contributions: $0
Minimum Grant: $250
Annual Admin Fee: Tiered schedule starting at .85% up to the first $250K. Investment fees are on top of this.
Impact Investing Options & Fees:
Equity and Inclusion – Seeks to narrow inequalities in society by creating economic opportunity that advances equity and inclusion.
Environmental Stewardship – Manages climate change risks and protects and conserves natural resources; moderate risk with moderate growth potential
Gender Lens – Supports the advancement of women in the workplace and beyond; moderate risk with moderate growth potential
Broad Social Impact – Advances solutions to global challenges, including conservation, financial inclusion and access to healthcare; higher risk with higher growth potential
DAFs can be transferred.
Some DAFs have high minimums while others have no minimums at all. Let’s say you start at Fidelity Charitable, with no minimum, and after years of saving and building your DAF to $25K, you want to move to ImpactAssets. You could open a new DAF at Impact Assets and grant your Fidelity Charitable funds to the Impact Assets DAF since they are both 501c(3) organizations. Not all organizations may allow for this, so ask about it before setting up a DAF if it is a strategy you plan on implementing.
originally published May 2022
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients nationwide and is based in San Diego. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a virtual fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning and ongoing impact-focused investment management. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and its advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.