Donor-Advised Funds: Definition, How They Work

Donor-Advised Funds (DAFs): What They Are and How They Work

Here's how donor-advised funds might help you cut your tax bill and give back to the community.

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Edited by other Updated Oct 31, 2025 Best Financial Advisors Find a Financial Advisor Near You | NerdWallet How to Choose a Financial Advisor in 5 Steps 5 Best Wealth Management Services

What is a donor-advised fund?

A donor-advised fund (DAF) is an account into which you can deposit assets for donation to charity over time. A sponsoring organization (the DAF) manages the account, and you recommend how to invest the assets and where to donate them. The donor can also claim a tax deduction for making contributions to the fund.

How does a donor-advised fund work?

Once assets are deposited into a donor-advised fund, the sponsoring organization has legal control over them. But as long as you choose a charity that's recognized by the IRS as a U.S. charitable organization, the sponsoring organization will usually use your charities of choice . ADAdvertisement ADAdvertisement AD Advertisement Get matched to a financial advisor for free with NerdWallet Advisors Match. ADAdvertisement ADAdvertisement AD Advertisement Get matched to a financial advisor for free with NerdWallet Advisors Match. ADAdvertisement ADAdvertisement AD Advertisement

Pros and cons of donor-advised funds (DAFs)

Pros

Bigger tax deduction now.

Lower capital gains taxes.

Possible reduced estate tax.

Helps form legacy of giving.

Anonymity.

Cons

Requires more upfront cash.

Can't get the money back once it's in the DAF.

There are fees.

Benefits of a donor-advised fund

In addition to providing financial support to charities, donor-advised funds have some notable financial benefits.

Bigger, more immediate tax deduction

You can claim a tax deduction in the year you contribute assets to the donor-advised fund rather than in the year the contribution goes to the charity. For example, if you typically donate $3,000 a month to charity ($36,000 a year), you could essentially prepay for, say, five years’ worth of donations by putting $180,000 in a donor-advised fund now. tax deduction The donor-advised fund would use the money to disburse $3,000 a month to the charity as usual, but you would get a $180,000 tax deduction this year instead of a $36,000 deduction every year for the next five years. If you had a high-earning year, are in a high tax bracket, or had a lot of taxable capital gains this year, getting a giant deduction in one year could be especially helpful. 🤓 Nerdy Tip In the 2025 tax year (the tax return you file by April 15, 2026), you have to itemize in order to deduct charitable contributions on your taxes. But the rules change for the 2026 tax year (this pertains to the tax return you file by April 15, 2027): People who don't itemize on their tax returns can deduct up to $1,000 (single) or $2,000 (married filing jointly) in charitable contributions. This means they can take the deduction for the 2026 tax year on the tax return that they will file in 2027. People who don't itemize on their tax returns People who don't itemize on their tax returns People who do itemize on their tax returns must donate an aggregate total of at least 0.5% of their adjusted gross income to charity in order to claim the deduction. People who do itemize on their tax returns People who do itemize on their tax returns » MORE: What are charitable remainder trusts and charitable lead trusts? » MORE:

Lower capital gains taxes

You won’t pay capital gains taxes on assets you put in a donor-advised fund, and if you donate assets that are worth more than what you paid for them, you typically can deduct the current market value of the asset rather than what you originally paid for the asset. capital gains taxes

Reduced estate tax

Few people have to pay estate taxes. The federal estate tax ranges from 18% to 40% and generally only applies to assets over $13.99 million in 2025 or $15 million in 2026. But if you’re one of those few, putting money in a donor-advised fund can reduce the size of your taxable estate and thus reduce your estate tax liability. The federal estate tax ranges from 18% to 40% and generally only applies to assets over $13.99 million in 2025 or $15 million in 2026. The federal estate tax ranges from 18% to 40% and generally only applies to assets over $13.99 million in 2025 or $15 million in 2026.

A legacy of giving

If you're doing some estate planning, you can make a bequest in your will so any remaining assets in your donor-advised fund are donated to your charities of choice after you die. There’s usually also the option to pass the assets to heirs so they can take the philanthropy mantle and give grants to charities they want to support. estate planning will

Anonymity

Some individuals gravitate toward donor-advised funds because of the anonymity these funds can provide. You can choose to withhold your identity and gift grants anonymously if you don’t want to be solicited for future donations or don’t want your donations to become public knowledge. » MORE: How family offices work and how much they cost » MORE:

What can you contribute to a donor-advised fund?

You don’t have to be wealthy to get into a DAF; some have low minimum contributions. Depending on the supporting organization and account type you choose, your minimal initial contribution could range anywhere from $0 to $100,000. You can contribute different kinds of assets to a donor-advised fund, such as: Cash. Stocks, bonds and mutual fund shares. Money in IRAs and 401(k)s. IRA 401(k)s Private company stock. Cryptocurrencies. Cryptocurrencies Life insurance. » MORE: See our picks for the year's best financial advisors » MORE: See our picks for the year's best financial advisors

How to invest in a donor-advised fund

1. Compare DAF sponsoring organizations

There are many different kinds of sponsoring organizations. Commercial donor-advised funds, for example, are run by nonprofit arms of national financial services firms. We highlight three of them in the table below. As it shows, donor-advised funds make money from fees. Fidelity Charitable Schwab Charitable Vanguard Charitable Minimum initial contribution $0. $0 for Core accounts; $100,000 for professionally managed accounts. $25,000. Minimum for additional contributions $0. $0. $5,000. Minimum grant to charity $50. $50. $500. Annual admin fee Greater of 0.60% or $100 (tiered after $500,000). 0.60% (tiered after $500,000). 0.60% (tiered after $500,000). Investment fees 0.015% to 0.89%. 0.03% to 0.78%. 0.01% to 0.59%. Maintenance fee $0. $0. $250/year if below $25,000.

2. Contribute cash or other assets to the donor-advised fund

You can put in cash, stocks or other investments, such as cryptocurrency or even your ownership in a private business. Note: Contributions are irrevocable, meaning that once you contribute the assets, you can’t get them out again (this is why DAFs can help reduce estate taxes; the money is no longer yours).

3. Itemize on your taxes to get the tax break

That means filling out Schedule A when you do your taxes and making sure that your itemized deductions exceed the standard deduction to get the most value for your donated bucks. You receive your tax break in the year you contribute to your donor-advised fund. Schedule A » MORE: How to find a CPA or tax accountant near you » MORE: How to find a CPA or tax accountant near you

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4. Help your donation grow

Although the sponsoring organization controls the money in the donor-advised fund and the investment options you choose from, you get to recommend which investments to use. The assets in a donor-advised fund are then invested and can appreciate tax-free until you’re ready to donate them to your charity of choice. Unlike private funds, there is no mandatory distribution date for individual donors, meaning the funds could sit in the donor-advised fund for years before charities receive them. However, many providers have policies that require regular disbursements to charity. 🤓 Nerdy Tip What are the advantages of waiting to disburse funds to charities? Some people prefer to wait for the investments to mature so they can give a larger amount. Others want the tax deduction immediately but need time to select charities they want to give to.

5. Pick charities to support

That’s the goal of the entire process. You can support pretty much any IRS-qualified public charity. Typically, the entity that sponsors the donor-advised fund is responsible for checking out charities to ensure that the money goes to legit ones. » MORE: See our picks for the year's best wealth advisors » MORE: See our picks for the year's best wealth advisors Explore more on Article sources NerdWallet writers are subject matter authorities who use primary, trustworthy sources to inform their work, including peer-reviewed studies, government websites, academic research and interviews with industry experts. All content is fact-checked for accuracy, timeliness and relevance. You can learn more about NerdWallet's high standards for journalism by reading our editorial guidelines. IRS.gov. Donor-advised funds. Accessed Oct 31, 2025. IRS.gov. Publication 526. Accessed Oct 31, 2025. Congress.gov. An Analysis of Charitable Giving and Donor Advised Funds. Accessed Oct 31, 2025. Congress.gov. Tax Issues Relating to Charitable Contributions and Organizations. Accessed Oct 31, 2025. About the authors Orem Tina Orem is an editor and content strategist at NerdWallet. Prior to becoming an editor and content strategist, she covered small business and taxes at NerdWallet. She has a degree in finance, as well as a master's degree in journalism and an MBA. Previously, she was a financial analyst and director of finance at public and private companies. Tina's work has appeared in a variety of local and national media outlets. Published in Ayoola Elizabeth Ayoola is a Lead Multimedia Producer and Co-Host of the "Smart Money" podcast. Before delving into the podcast world, Elizabeth acquired over ten years of experience as a writer, and seven were spent covering personal finance topics. Her journey to finance writing started with a goal to learn as much as she could about how to attain financial freedom and share information with others about how to do it, too. This led her to Debt.com, where she covered topics relating to mortgages, debt and credit. Her articles have appeared on platforms like Washington Post, The Associated Press, The Washington Post, Yahoo, Essence, The Knot, PopSugar and Parents.com. Elizabeth has also done extensive spokesperson work and appeared on multiple renowned national networks like Good Morning America, ABC, NBC, and Fox to discuss money. Published in How Much Does a Financial Advisor Cost? By Arielle O'Shea Do You Need a Financial Advisor? 7 Ways to Tell By Taryn Phaneuf How to Find Cheap or Free Financial Advice By June Sham 3 Steps to Prepare for Your First Financial Advisor Meeting By June Sham