The Advantages of Using Appreciated Securities to Fund a Donor-Advised Fund
Many people fund their donor-advised funds with cash, but gifting appreciated securities can be a smarter move. By donating stocks, mutual funds, or ETFs instead of cash, you can avoid capital gains tax and still claim a charitable deduction for the asset’s full market value. Our analysis at Greenbush Financial Group explains how this strategy can create a double tax benefit and help you give more efficiently.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
Many individuals fund their donor-advised funds (DAFs) with cash — but they may be missing out on a major tax-saving opportunity. By gifting appreciated securities (such as stocks, mutual funds, or ETFs) from a brokerage account instead of cash, taxpayers can avoid capital gains taxes and still receive a charitable deduction for the fair market value of the gift.
In this article, we’ll cover:
Why donor-advised funds have grown in popularity
The pros and cons of funding a DAF with cash
How gifting appreciated securities can create a double tax benefit
Charitable deduction limitations to keep in mind when using this strategy
The Rise in Popularity of Donor-Advised Funds
Donor-advised funds have become one of the most popular charitable giving vehicles in recent years. Much of this growth is tied to changes in the tax code — particularly the increase in the standard deduction.
Since charitable contributions are itemized deductions, taxpayers must itemize in order to claim them. But with the standard deduction now so high, fewer taxpayers itemize their deductions at all.
For example:
In 2025, the standard deduction for a married couple is $31,500.
Let’s say that a couple pays $10,000 in property taxes and donates $10,000 to charity.
Their total itemized deductions would be $20,000, which is still below the $31,500 standard deduction — meaning they’d receive no additional tax benefit for their $10,000 charitable gift.
That’s where donor-advised funds come in.
If this same couple plans to give $10,000 per year to charity for the next five years (totaling $50,000), they could “bunch” those future gifts into one year by contributing $50,000 to a donor-advised fund today. This larger, one-time contribution would push their itemized deductions well above the standard deduction threshold, allowing them to capture a significant tax benefit in the current year.
Another advantage is flexibility — the funds in a donor-advised account can be invested and distributed to charities over many years. It’s a way to pre-fund future giving while taking advantage of a larger immediate tax deduction.
Funding with Cash
It’s perfectly fine to fund a donor-advised fund with cash, especially if your goal is simply to capture a large charitable deduction in a single tax year.
Cash contributions are straightforward and qualify for a deduction of up to 60% of your adjusted gross income (AGI). But while this approach helps you maximize deductions, there may be an even more tax-efficient way to give — especially if you own highly appreciated investments in a taxable brokerage or trust account.
Using Appreciated Securities to Make Donor-Advised Fund Contributions
A potentially superior strategy is to contribute appreciated securities instead of cash. Doing so provides a double tax benefit:
Avoid paying capital gains tax on the unrealized appreciation of the asset.
Receive a charitable deduction for the fair market value of the donated securities.
Here’s an example:
Suppose you bought Google stock for $5,000, and it’s now worth $50,000.
If you sell the stock and then donate the $50,000 cash to your donor-advised fund, you’d owe capital gains tax on the $45,000 gain.
Alternatively, if you donate the stock directly to your donor-advised fund, you:
Avoid paying tax on that $45,000 unrealized gain, and
Still receive a $50,000 charitable deduction for the fair market value of the stock.
After the transfer, if you’d still like to own Google stock, you can repurchase it within your brokerage account — effectively resetting your cost basis to the current market value. This approach can help manage future capital gains exposure while supporting your charitable goals.
Charitable Deduction Limitations: Cash vs. Appreciated Securities
Whether you donate cash or appreciated securities, it’s important to understand the IRS limits on charitable deductions relative to your income. These limitations are based on a percentage of your adjusted gross income (AGI) and vary depending on the type of asset you donate:
This means if you donate appreciated securities worth more than 30% of your AGI, the excess amount can’t be deducted in the current year — but it can be carried forward for up to five additional years until fully utilized.
Being mindful of these limits ensures that your charitable giving strategy is both tax-efficient and compliant.
Final Thoughts
Using appreciated securities to fund a donor-advised fund can be one of the most effective ways to maximize your charitable impact and minimize taxes. By avoiding capital gains tax on appreciated assets and receiving a deduction for their full fair market value, you can create a powerful, ongoing giving strategy that benefits both your finances and your favorite causes.
Before implementing this strategy, it’s wise to work with your financial advisor or CPA to confirm eligibility, ensure proper documentation, and coordinate timing for optimal tax efficiency.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQ)
Why is donating appreciated securities to a donor-advised fund more tax-efficient than giving cash?
Donating appreciated securities allows you to avoid paying capital gains tax on the investment’s appreciation while still receiving a charitable deduction for its fair market value.
How does a donor-advised fund help maximize charitable deductions?
A donor-advised fund (DAF) allows you to “bunch” multiple years of charitable contributions into a single tax year, pushing your itemized deductions above the standard deduction threshold. This strategy can help you capture a larger tax benefit in the current year while retaining flexibility to distribute funds to charities over time.
What are the IRS deduction limits for donating appreciated securities versus cash?
Cash donations to public charities or donor-advised funds are generally deductible up to 60% of your adjusted gross income (AGI), while donations of appreciated securities are limited to 30% of AGI. Any unused deductions can typically be carried forward for up to five years.
Can I repurchase the same securities after donating them to a donor-advised fund?
Yes. After donating appreciated securities, you can repurchase the same investment within your brokerage account. This effectively resets your cost basis to the current market value, helping manage future capital gains exposure while maintaining your investment position.
Who might benefit most from using appreciated securities to fund a donor-advised fund?
This strategy is especially beneficial for investors with highly appreciated assets in taxable accounts who want to support charitable causes while reducing taxes. It can also help high-income earners manage taxable income in peak earning years.
What are some common mistakes to avoid when donating appreciated securities?
Common pitfalls include selling the securities before donating them (which triggers capital gains tax) or failing to meet IRS substantiation requirements for non-cash gifts. Working with a financial advisor or CPA ensures proper execution and documentation.
What Is A Donor Advised Fund and How Do They Work for Charitable Contributions?
Due to changes in the tax laws, fewer individuals are now able to capture a tax deduction for their charitable contributions. In an effort to recapture the tax deduction, more individuals are setting up Donor Advised Funds at Fidelity and Vanguard to take full advantage of the tax deduction associated with giving to a charity, church, college, or other not-for-profit organizations.
Due to changes in the tax laws, fewer individuals are now able to capture a tax deduction for their charitable contributions. In an effort to recapture the tax deduction, more individuals are setting up Donor Advised Funds at Fidelity and Vanguard to take full advantage of the tax deduction associated with giving to charity, church, college, or other not-for-profit organizations.
In this article, we will review:
The reason why most taxpayers can no longer deduct charitable contributions
What is a Donor Advised Fund?
How do Donor Advised Funds operate?
Gifting appreciated securities to Donor Advised Funds
How are Donor Advised Funds invested?
How to set up a self-directed Donor Advised Fund
The Problem: No Tax Deductions For Charitable Contributions
When the Tax Cut and Jobs Act was passed in 2017, it greatly limited the number of taxpayers that were able to claim a tax deduction for their charitable contributions. Primarily because in order to claim a tax deduction for charitable contributions, you have to itemize when you file your taxes because charitable contributions are an itemized deduction.
When you file your taxes, you have to choose whether to elect the standard deduction or to itemize. The Tax Cut & Jobs Act greatly increased the amount of the standard deduction, while at the same time it capped two of the largest itemized tax deductions for taxpayers - which is state income tax paid and property taxes. SALT (state and local taxes) are now capped at $10,000 per year if you itemize.
In 2025, the standard deduction for single filers is $15,000 and $30,000 for married filing joint, which means if you are a married filer, and you want to deduct your charitable contributions, assuming you reach the SALT cap at $10,000 for state income and property taxes, you would need another $20,000 in tax deductions before your reached that amount of the standard deduction. That’s a big number to hurdle for most taxpayers.
Example: Joe and Sarah file a joint tax return. They pay state income tax of $8,000 and property taxes of $6,000. They donate $5,000 to their church and a variety of charities throughout the year. They can elect to take the standard deduction of $30,000, or they could itemize. However, if they itemize while their state income tax and property taxes total $14,000, they are capped at $10,000 and the only other tax deduction that they could itemize is their $5,000 to church and charity which brings them to a total of $15,000. Since the standard deduction is $14,000 higher than if they itemized, they would forgo being able to deduct those charitable contributions, and just elect that standard deduction.
How many taxpayers fall into the standard deduction category? According to the Tax Policy Center, in 2020, about 90% of taxpayers claimed the standard deduction. Prior to the passing of the Tax Cut and Jobs Act, only about 70% of taxpayers claimed the standard deduction meaning that more taxpayers were able to itemize and capture the tax deduction for their charitable contributions.
What Is A Donor Advised Fund
For individuals that typically take the standard deduction, but would like to regain the tax deduction for their charitable contributions, establishing a Donor Advised Fund may be a solution.
A Donor Advised Fund looks a lot like a self-directed investment account. You can make contributions to your donor advisor fund, you can request distributions to be made to your charities of choice, and you can direct the investments within your account. But the account is maintained and operated by a not-for-profit organization, a 501(c)(3), that serves as the “sponsoring organization”. Two of the most recognized providers within the Donor Advised Fund space are Fidelity and Vanguard.
Both Fidelity and Vanguard have their own Donor Advised Fund program. These large investment providers have established a not-for-profit arm for the sole purpose of allowing investors to establish, operate, and invest their Donor Advised Account for their charitable giving.
Why Do People Contribute To A Donor Advised Fund?
We just answered the “What” question, now we will address the “Why” question. Why do people contribute to these special investment accounts at Fidelity and Vanguard and what is it about these accounts that allow taxpayers to capture the tax deduction for their charitable giving that was previously lost?
The short answer - it allows taxpayers that give to charity each year, to make a large lump sum contribution to an investment account designated for their charitable giving. That then allows them to itemize when they file their taxes and capture the deduction for their charitable contributions in future years.
Here’s How It Works
As an example, Tim and Linda typically give $5,000 per year to their church and charities throughout the year. Since they don’t have any other meaningful tax deductions outside of their property taxes and state income taxes that are capped at $10,000, they take the $30,000 standard deduction when they file their taxes, and do not receive any additional tax deductions for their $5,000 in charitable contributions, because they did not itemize.
Instead, Tim and Linda establish a Donor Advised Fund at Fidelity, and fund it with a one-time $50,000 contribution. Since they made that contribution to a Donor Advised Fund which qualifies as an IRS approved charitable organization, the year that they made the $50,000 contribution, they will elect to itemize when they file their taxes and they’ll be able to capture the full $50,000 tax deduction, since that amount is well over the $30,000 standard deductions.
But the $50,000 that was contributed to their Donor Advised Fund does not have to be distributed to charities all in that year. Each Donor Advised Program has different minimum annual charitable distribution requirements, but at the Fidelity program it’s just $50 per year. In other words, taxpayers that make these contributions to the Donor Advised Fund can capture the full tax benefit in the year they make the contributions, but that account can then be used to fund charitable contribution for many years into the future, they just have to distribute at least $50 per year to charity.
It gets better, Tim and Linda then get to choose how they want to invest their Donor Advised Fund, and they select a 60% stock / 40% bond portfolio. So not only are they able to give from the $50,000 that they contributed, but all of the investment returns continue to accumulate in that account that Tim and Linda will never pay tax on, that they can then use for additional charitable giving in the future.
How Do Donor Advised Funds Operate?
The example that I just walked you through laid the groundwork for how these Donor Advised Fund to operate, but I want to dive a little bit deeper into some features that are important with these types of accounts.
Funding Minimums
All Donor Advised Funds operate differently depending on the provider. One example is the minimum funding requirement to open a Donor Advised Fund. The Fidelity program does not have an investment minimum, so they can be opened with any amount. However, the Vanguard program currently has a $20,000 investment minimum.
Fees Charged By Donor Advised Sponsor
Both Vanguard and Fidelity assess an annual “administration fee” against the assets held within their Donor Advised Fund program. This is how the platform is compensated for maintaining the not-for-profit entity, processing contributions and distributions, investment services, issuing statements, trade confirmations, and other administrative responsibilities. At the time that I’m writing this article, both the Fidelity and Vanguard program charge an administrative fee of approximately 0.60% per year.
How Charitable Distributions Are Made From Donor Advised Funds
Once the Donor Advised Account is funded, owners are able to either login online to their account and request money to be sent directly to their charity of choice, or they can call the sponsor of the program and provide payment instructions over the phone.
For example, if you wanted to send $1,000 to the Red Cross, you would log in to your Donor Advised account and request that $1,000 be sent directly from your Donor Advised account to the charity. You never come into contact with the funds. The charitable distributions are made directly from your account to the charity.
When you login to their online portals, they have a long list of pre-approved not-for-profit organizations that have been already established on their platform, but you are able to give to charities that are not on that pre-approved list. A common example is a church or a local not-for-profit organization. You can still direct charitable contributions to those organizations, but you would need to provide the platform with the information that they need to issue the payment to the not-for-profit organization not on their pre-approved list.
Annual Grant Requirement
As I mentioned earlier, different donor advised programs have different requirements as to how much you are required to disperse from your account each year and some platforms only require a disbursement every couple of years. For example, the Vanguard program only requires that a $500 charitable distribution be made once every three years, but they do not require an annual distribution to be made.
Irrevocable Contributions
It’s important to understand that contributions made to Donor Advised Funds are irrevocable, meaning they cannot be reversed. Once the money is in your Donor Advised Account, you cannot ask for that money back. The platform just gives you “control” over the investment allocation, and how and to who the funds are disbursed to for your charitable giving.
What Happens To The Balance In The Donor Advised Fund After The Owner Passes Away?
Since some of our clients have substantial balances in these Donor Advised Funds, we had to ask the question, “What happens to the remaining balance in the account after the owner of the account passes away?”. Again, the answer can vary from platform to platform, but most platforms offer a few options.
Option 1: The owner of the account can designate any number of charities as final beneficiaries of the account balance after they pass away, and then the full account balance is distributed to those charities after they pass.
Option 2: The owner can name one or more successor owners for the account that will take over control of the account and the charitable giving after the original owner passes away. As planners, we then asked the additional question, “What if they have multiple children, and each child has different charitable preferences?”. The response from Vanguard was that the Donor Advisor Fund can be split into separate Donor Advised accounts controlled by each child, Then, each child can dictate how the funds in their account are distributed to charity.
Gifting Cash or Appreciated Securities
There are two main funding options when making contributions to a Donor Advised Fund. You can make a cash contribution or you can fund it by transferring securities from a brokerage account. Funding with cash is easy and straightforward. When you establish your Donor Advised Fund, you can set up bank instructions to attach your checking account to their Donor Advised Fund for purposes of making contributions to the account. There are limits on the tax deductions for cash contributions in a given year. For cash contributions, donors can receive a tax deduction up to 60% of their AGI for the year.
Funding the donor advised fund with appreciated securities from your taxable brokerage account has additional tax benefits. First, you receive the tax deduction for making the charitable contribution just like it was made in cash, but, if you transfer a stock or security directly from your taxable brokerage account to the Donor Advised Fund, the owner of the brokerage account avoids having to pay tax on the unrealized capital gains built up in that security.
For example, Sue bought $10,000 of Apple stock 10 years ago and it’s now worth $50,000. If she sells the stock, she will have to pay long term capital gains taxes on the $40,000 gain in that holding. If instead, she sets up a Donor Advised Fund and transfers the $50,000 in Apple stock directly from her brokerage account to her Donor Advised account at Fidelity, she may receive a tax deduction for the full $50,000 fair market value of the stock and avoids having to pay tax on the unrealized capital gain.
An important note regarding the deduction limits for gifting appreciated securities - the tax deduction is limited to 30% of the taxpayers AGI for the year. Example, if Sue has an AGI of $100,000 for 2025 and wants to fund her Donor Advised Fund with her appreciated stock, the most she can take a deduction for in 2025 is $30,000. ($100,000 AGI x 30% limit).
As you can see, transferring appreciated stock to a Donor Advised Fund can be beneficial, but cash offers a higher threshold for the tax deduction in a single year.
Donor Advised Funds Do Not Make Sense For Everyone
While establishing and funding a Donor Advised Fund may be a viable solution for many taxpayers, it’s definitely not for everyone. In short, your annual charitable contributions have to be large enough for this strategy to make sense.
First example, if you are contributing approximately $2,000 per year to charity, and you don’t intend on making bigger contributions to charities in the future, it may not make sense to contribute $40,000 to a Donor Advised Fund. Remember, the whole idea is you have to make a large enough one-time contribution to hurdle the standard deduction limit for itemizing to make sense. You also have to itemize to capture the tax deduction for your charitable contributions.
If you are a single filer, you don’t have any tax deductions, and you make a $5,000 contribution to a Donor Advised Fund - that is still below the $15,000 standard deduction amount. In this case, you are not realizing the tax benefit of making that contribution to the Donor Advised Fund. If instead, you made a $30,000 contribution as a single filer, now it may make sense.
Second example, not enough taxable income. For our clients that are retired, many of them are showing very little income (on purpose). If we have a client that is only showing $50,000 for their AGI, the tax deduction for their cash contributions would be limited to $30,000 (60% of AGI) and gift appreciated securities would be limited to $15,000 (30% of AGI). Unless they have other itemized deductions, that may not warrant making a contribution to a Donor Advised Fund because they are right there at the Standard Deduction amount. PLUS, they are already in a really low tax bracket, so they don’t really need the deduction.
This Strategy is Frequently Used When A Client Sells Their Business
Our clients commonly use this Donor Advised Fund strategy during abnormally large income years. The most common is when a client sells their business. They may realize a few million dollars in income from the sale of their business in a single year, and if they have some form of charitable intent either now or in the future, they may be able to fund a Donor Advised Fund with $100,000+ in cash or appreciated securities. This takes income off the table at potentially the highest tax brackets and they now have an account that is invested and growing that will fund their charitable gifts for the rest of their life.
How to Set-up A Donor Advised Fund
Setting up a Donor Advised Fund is very easy. Here are the links to the Fidelity and Vanguard Platforms for their Donor Advised Fund solutions:
Fidelity Donor Advised Fund Link: Fidelity Charitable Fund Link
Vanguard Donor Advised Fund Link: Vanguard Charitable Fund Link
Disclosure: We want to provide the links as a convenience to our readers, but it does not represent an endorsement of either platform. Investors should seek guidance from their financial professionals.
These Donor Advised Funds for the most part are self-directed platforms which allow you to select the appropriate investment allocation from their investment menu when you set up your account.
Contact Us With Questions if you have any questions on the Donor Advised Fund tax strategy, please feel free to reach out to us.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs):
Why can fewer taxpayers deduct charitable contributions now?
After the 2017 Tax Cuts and Jobs Act (TCJA), the standard deduction nearly doubled and capped state and local tax (SALT) deductions at $10,000. Because of this, most taxpayers now take the standard deduction instead of itemizing, which means they can’t deduct charitable donations.
What is a Donor Advised Fund (DAF)?
A Donor Advised Fund is a charitable investment account that allows you to make a large, tax-deductible contribution in one year, invest the funds for potential growth, and distribute money to charities over time. Providers like Fidelity and Vanguard operate these programs through nonprofit foundations.
How does a Donor Advised Fund help restore the tax deduction for charitable giving?
By making a single large contribution to a DAF, donors can exceed the standard deduction threshold and itemize on their tax return in that year. The donor then uses the fund to make charitable gifts gradually over future years, even though they already received the full tax deduction upfront.
Can you fund a Donor Advised Fund with appreciated stock?
Yes. You can contribute appreciated securities instead of cash. This approach allows you to receive a tax deduction for the full fair market value of the stock while also avoiding capital gains taxes on the appreciation.
What are the tax deduction limits for contributions?
Cash contributions to a DAF are deductible up to 60% of your adjusted gross income (AGI), while appreciated securities are deductible up to 30% of AGI. Any excess contributions can be carried forward for up to five years.
When does a Donor Advised Fund make sense?
DAFs make the most sense for individuals with large charitable intent who want to bunch multiple years of giving into one tax year—often after a major income event like selling a business or receiving a large bonus.
