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.
2026 Retirement Planning: 7 Smart Purchases to Make Before You Stop Working
Retirement isn’t just about saving—it’s about spending wisely. From medical care and home repairs to travel and vehicles, this guide shows 7 smart purchases to consider before leaving the workforce, with tax and planning tips to help you retire stress-free.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
Most retirees spend decades saving and investing, only to face one of the hardest transitions at the finish line: shifting from saver to spender. At Greenbush Financial Group, we often hear clients say they wish they had spent more strategically before retiring—not less. By making key purchases while you still have earned income, you can reduce stress, avoid costly surprises, and give yourself permission to fully enjoy retirement.
This article covers seven smart spending decisions to consider before leaving the workforce, along with the tax and planning angles that can make them even more effective.
Medical and Dental Work Before Medicare
Healthcare costs can spike in retirement, and Medicare doesn’t cover everything—especially dental, vision, and hearing. It’s often wise to complete major procedures while you’re still working.
Max out your Health Savings Account (HSA) during your last high-income years. HSAs offer triple tax benefits—deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified expenses.
If modifications such as no-threshold showers or grab bars are medically necessary, some may qualify as itemized deductions. Proper documentation is essential.
Map out coverage if you retire before age 65. Compare COBRA, ACA marketplace options, and potential premium tax credits.
Secure Your Next Home While Still Employed
Qualifying for a mortgage is often easier with W-2 income than retirement income. Buying or refinancing before you retire can lock in more favorable terms.
Downsizing? Remember the §121 home sale exclusion allows couples filing jointly to exclude up to $500,000 of capital gain on the sale of a primary residence ($250,000 if single).
Considering upgrades? Look into energy-efficiency credits under the Inflation Reduction Act. For example, the Energy Efficient Home Improvement Credit (25C) can provide annual tax credits for qualifying improvements.
Complete Major Home Repairs and Aging-in-Place Upgrades
Addressing big-ticket items before retirement reduces future cash flow stress. Common examples include:
Roof, HVAC system, windows, and insulation
Whole-home surge protection or backup power systems
No-threshold showers, wider doorways, higher-seat toilets
Tackling these projects upfront means fewer disruptions—and potentially fewer withdrawals during a market downturn.
Buy a Reliable, Paid-Off Vehicle
Transportation is a non-negotiable retirement expense. Purchasing a reliable, low-maintenance car before retiring allows you to enter retirement debt-free.
Evaluate new vs. certified pre-owned (CPO) for warranty protection.
For those considering EVs or hybrids, federal and state incentives can significantly reduce net cost.
Budget for a replacement cadence of 7–10 years to spread costs evenly across retirement.
Prepay for Bucket-List Travel
The early years of retirement are often called the “go-go years.” Booking major trips while you’re healthy—and locking in refundable deposits or travel insurance—helps ensure you actually take them.
Build a “first 1,000 days of retirement” calendar to schedule must-do experiences.
Consider paying now while your income supports larger expenses. This reduces pressure on retirement withdrawals later.
Use High-Income Years to Fund Future Spending
Your final working years often come with peak income. This creates opportunities to front-load retirement readiness:
Roth conversions up to the top of your target bracket before Medicare enrollment can reduce future taxable income.
Watch for IRMAA (income-related monthly adjustment amounts) at ages 63–65, which can increase Medicare premiums if income is too high.
Consider donor-advised fund (DAF) contributions to pre-fund charitable giving while reducing taxable income.
Don’t Forget Estate and Administrative Prep
Beyond purchases, pre-retirees benefit from a final sweep of administrative tasks:
Separate credit cards for spouses to maintain access to credit.
Pre-need funeral planning or irrevocable funeral trusts to relieve future burdens.
Refresh wills, POA, health care proxies, and beneficiary designations.
Audit recurring subscriptions, timeshares, and other lifestyle costs.
Key Takeaway
Retirement is about more than accumulating assets—it’s about spending them wisely. By completing health care, housing, car, and travel purchases while still earning, you free up your retirement income for flexibility and enjoyment. At Greenbush Financial Group, we help clients not only save smart but also spend smart.
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)
What major expenses should I plan to cover before retiring?
Common pre-retirement purchases include completing medical or dental procedures, making home repairs or accessibility upgrades, and replacing your vehicle. Addressing these while you still have earned income helps reduce financial stress once you retire and may provide additional tax benefits.
Why should I complete medical and dental work before enrolling in Medicare?
Medicare generally doesn’t cover dental, vision, or hearing care. Completing major procedures before retirement—while you still have employer coverage—can save money and simplify your transition. It’s also smart to fully fund your Health Savings Account (HSA) in your final working years for future tax-free healthcare spending.
Is it better to buy or refinance a home before retiring?
Yes, qualifying for a mortgage is typically easier when you have active W-2 income. Buying, refinancing, or downsizing before retirement can secure better terms. Couples selling their primary residence may also exclude up to $500,000 in capital gains, and certain energy-efficient home upgrades may qualify for tax credits.
Why should I replace my car before retirement?
Buying a dependable, low-maintenance car before you retire allows you to enter retirement debt-free and avoid large future withdrawals.
How can I use my final high-income years to improve my retirement outlook?
Peak earning years are ideal for strategic financial moves like Roth conversions, funding a donor-advised fund (DAF), or prepaying for future travel. These steps can help lower future taxable income, manage Medicare premiums, and enhance your flexibility in retirement.
What estate and administrative steps should I complete before retiring?
Review and update your will, powers of attorney, and beneficiary designations. Consider establishing separate credit accounts for each spouse, planning funeral arrangements in advance, and canceling unnecessary subscriptions or timeshares to streamline post-retirement finances.
How do pre-retirement purchases support a more enjoyable retirement?
Spending strategically before you stop working lets you handle big expenses with current income, freeing future cash flow for experiences and lifestyle choices. At Greenbush Financial Group, we encourage clients to view retirement not just as saving wisely—but spending wisely, too.
Understanding Self-Employment Tax: A Guide for the Newly Self-Employed
Self-employment taxes can catch new business owners off guard. Our step-by-step guide explains the 15.3% tax rate, quarterly deadlines, and strategies to avoid costly mistakes.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
Becoming self-employed can be one of the most rewarding career moves you’ll ever make. It comes with flexibility, independence, and the ability to control your own destiny. But it also comes with new responsibilities—particularly when it comes to taxes. One of the first financial hurdles new business owners encounter is understanding self-employment tax and how to keep up with their tax obligations throughout the year.
For business owners learning these rules for the first time, here is the step-by-step breakdown of what you need to know.
What Is Self-Employment Tax?
When you work as an employee and receive a W-2, your employer withholds Social Security and Medicare taxes from your paycheck. What many don’t realize is that your employer is paying half of those taxes on your behalf.
When you’re self-employed, however, you are both the employer and the employee. That means you’re responsible for the full 15.3% self-employment tax (12.4% for Social Security and 2.9% for Medicare) on your net earnings. If your income is above certain thresholds, an additional 0.9% Medicare surtax may apply.
This tax is in addition to federal and state income taxes, which makes planning ahead critical.
Estimated Tax Payments and Deadlines
Unlike W-2 employees, there’s no paycheck system automatically sending taxes to the government for you. The IRS expects you to make quarterly estimated tax payments. These payments cover both your income tax liability and your self-employment tax.
The deadlines for estimated tax payments are:
April 15 – for income earned January 1 through March 31
June 15 – for income earned April 1 through May 31
September 15 – for income earned June 1 through August 31
January 15 (of the following year) – for income earned September 1 through December 31
If the due date falls on a weekend or holiday, the deadline shifts to the next business day.
How Are Estimated Taxes Calculated?
The IRS gives you two main methods for calculating estimated taxes, sometimes called the “safe harbor” rules:
Prior-Year Method (110% Rule)
If your adjusted gross income was more than $150,000 in the previous year (or $75,000 if single), you can avoid penalties by paying 110% of your prior year’s total tax liability in equal quarterly installments.
If your income was below those thresholds, the requirement is 100% of your prior year’s tax liability.
Current-Year Method
Alternatively, you can calculate your actual expected tax liability for the current year and make payments to cover 90% of that amount.
What Happens If You Don’t Pay Estimated Taxes?
Failing to make estimated tax payments can lead to IRS penalties. These are generally underpayment penalties, calculated based on the amount you should have paid each quarter compared to what you actually paid.
In addition to penalties, you’ll still owe the unpaid taxes at year-end. This often creates a cash flow crisis for new self-employed individuals who didn’t set money aside during the year.
The IRS does offer some relief if:
You owe less than $1,000 in tax after subtracting withholding and credits, or
You paid at least 90% of your current-year tax liability (or 100%/110% of your prior year’s tax liability, depending on income).
Still, the safest strategy is to set aside a portion of each payment you receive for taxes and make your estimated payments on time.
How IRS Penalties Are Calculated?
The IRS calculates underpayment penalties using two key components:
Amount of Underpayment – The penalty is based on how much you should have paid each quarter versus how much you actually paid.
Time Period of Underpayment – The penalty is essentially interest charged on the shortfall, starting from the due date of the missed payment until the date you make it.
The interest rate used is tied to the federal short-term interest rate plus 3%. This rate changes quarterly, so the penalty amount can vary depending on when the shortfall occurred.
For example:
If you owed $4,000 in estimated payments for a quarter but only paid $2,000, the IRS considers the $2,000 shortfall late.
Interest is charged daily on the unpaid portion until you make up the difference or file your return.
While penalties may seem small at first, they add up quickly—especially if you consistently underpay throughout the year.
Why Taxes Become More Complex When You’re Self-Employed
For most W-2 employees, tax filing is relatively straightforward—gather a W-2 or two, maybe add a few deductions, and you’re done. For the self-employed, the process quickly becomes more involved:
Tracking business expenses for deductions (supplies, mileage, home office, etc.).
Paying both sides of Social Security and Medicare taxes.
Dealing with quarterly estimated payments.
Understanding rules around depreciation, retirement plan contributions, and health insurance deductions.
Because of these added layers, we strongly recommend engaging an experienced accounting firm or tax professional, especially in your first few years. This not only ensures compliance but also frees up your time to focus on building your business instead of spending evenings trying to interpret the tax code.
Final Thoughts
Transitioning from employee to self-employed entrepreneur comes with an exciting new level of independence—but it also requires discipline. Understanding self-employment tax, staying on top of quarterly estimated payments, and planning ahead for income tax can help you avoid costly surprises at year-end.
Working with a qualified tax professional or financial planner can help you estimate payments accurately, maximize deductions, and keep your business finances running smoothly.
Remember: as a self-employed individual, you are your own payroll department. Treating taxes like a regular business expense is the best way to stay ahead and protect your financial success.
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)
What is self-employment tax, and who has to pay it?
Self-employment tax covers both the employee and employer portions of Social Security and Medicare taxes, totaling 15.3%. Anyone earning $400 or more in net self-employment income must generally pay this tax, in addition to regular income taxes.
How often do self-employed individuals have to pay taxes?
The IRS requires quarterly estimated tax payments to cover both income and self-employment taxes. Payments are typically due April 15, June 15, September 15, and January 15 of the following year.
How can I calculate my estimated tax payments?
You can use the “safe harbor” rules: pay 100% of your prior year’s tax liability (110% if your income was over $150,000) or 90% of your current year’s expected tax liability. These methods help avoid IRS underpayment penalties.
What happens if I don’t make estimated tax payments?
Missing payments or underpaying can result in IRS penalties and interest, calculated based on how much you underpaid and for how long. Even if penalties apply, you’ll still owe the unpaid taxes at year-end.
How are IRS penalties for underpayment calculated?
Penalties function like interest, accruing daily on any shortfall from the payment due date until it’s paid. The rate is the federal short-term interest rate plus 3%, adjusted quarterly.
Why is tax planning more complex for self-employed individuals?
Self-employed taxpayers must track deductible expenses, manage quarterly payments, pay both sides of payroll taxes, and navigate complex deductions like home office or retirement contributions. Professional guidance can simplify compliance and help maximize deductions.
What’s the best way to stay on top of taxes when self-employed?
Set aside a portion of every payment you receive for taxes, make quarterly estimated payments on time, and work with a tax professional to stay compliant. Treating taxes as a regular business expense helps prevent surprises at year-end.
