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When it comes to planning for the future, many of us consider opening investment funds dedicated to retirement or saving for a child’s future education expenses — but how often do we consider putting aside money for charity?
On Yahoo Finance’s Financial Freestyle podcast, Daffy co-founder and CEO Adam Nash revealed how donor-advised funds can actually help people save more money for charitable contributions — and receive additional tax breaks along the way.
“It’s a complete myth that only the wealthy give,” Nash said. “In fact, a lot of studies actually show that the average person proportionally is more generous. It’s about 60 million households in the US every year that give to charity.”
Nash pointed out that people often don’t make a charitable donation until they’re asked, but that doesn’t mean individuals can’t include money for giving in long-term budgeting goals.
Daffy is an acronym for “donor-advised fund for you,” and the company aims to make these accounts easier for the average person to open and contribute to regularly. They allow individuals to not only set aside money for donations but also help to smartly invest that money.
“A donor-advised fund is just a tax-advantaged account for charity,” Nash explained. “You can think of it like an IRA or 401(k) for charity, right? It’s designed for that. You can put money aside in this account, you immediately get the charitable deduction for your taxes, and then that money can be invested tax-free in any number of portfolios.”
He noted that Daffy allows users to donate the money in their donor-advised fund whenever they’re ready to contribute. “I honestly believe that, Daffy aside, everyone who gives to charity regularly should have a donor-advised fund,” Nash said.
For those who receive stock options as part of their compensation package or have crypto investments they’d like to use to contribute, using these assets as a donation can give investors a “double tax win.”
“If you’ve held the investment more than a year, first of all, you get to deduct the full market value of that investment today — not what you invested in it years ago, but what it’s worth today,” Nash said. “And second, you’ll never pay the capital gains taxes on that gain. So you get this double win.”
Daffy allows users to contribute their crypto and stock options as a donation, which Nash said can be “an incredibly smart financial move” if your investment has a large capital gain due to the tax benefits.
Nash also explained how these accounts benefit charitable causes, noting that those who intentionally set a donation goal give about 32% more to charity on average.
“The truth is, if you talk to the organizations, … they want people who are going to support them for long periods of time,” he said. “They don’t just want one check, one donation. They want to build a community around the cause and the organization that they’re passionate about.”
Every Monday, Financial Freestyle host Ross Mac talks with key guests to discuss their wealth-building journeys and what it takes to build a lasting financial footprint. You can find more episodes on our video hub or watch on your preferred streaming service.
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