Walt Mozdzer, CFP®, CAP®, CEPA®

When it comes to reducing your income tax bill, giving to charity is one of the easiest ways to do that, and millions of Americans give generously each year. But when it comes to maximizing the tax efficiency of your charitable giving, the donor advised fund may be the best tool in the charitable giving toolbox.

Often hosted by a community foundation such as the Community Foundation of Greater Des Moines, a donor advised fund is an account through which individuals can make gifts of cash or property and possibly qualify for a charitable tax deduction in the same year. The donor then serves as an “advisor” to the fund and can request grants be made to local or national 501(c)(3) organizations, the definition of a qualified charity.

One unique feature of donor advised funds is that they allow you to separate the calendar year of the tax deduction with the eventual disbursement of funds to the charities you care about. You can also group several years of normal charitable giving amounts into one year and use the tax deduction to offset an income spike.

Let’s say you earned a $100,000 bonus for a job well done and that you normally give $5,000 a year to charity. You could place $25,000 of the bonus into a donor advised fund and possibly take that amount as a tax deduction. By doing this you can multiply your charitable deduction by five times the normal amount, assuming you itemize your tax deductions each year. Because the $100,000 bonus pushed you into a higher tax bracket, your tax deduction is more valuable than a normal year. In addition, the $25,000 donor advised fund can now be used to give away the $5,000 per year to charity, and because donations are not coming out of your checking account, it feels like you got a pay raise via a reduced expense. That’s about $400 of freed-up cash each month.

If you take the additional step of investing the $25,000, you could potentially gain additional charitable grants from the donor advised fund.

One of my favorite uses of the donor advised fund is the flexibility to incorporate this tool into estate planning. By naming a donor advised fund as a partial or whole beneficiary of IRAs and other retirement accounts, you establish the intention to leave part of your estate to your favorite causes without being irrevocably bound to the named charities. It’s true that beneficiary designation forms are easily changed, but if you own multiple retirement accounts, the management of multiple beneficiary changes can feel burdensome. Some donor advised funds allow for charity percentage changes via a simple letter of instruction. As a result, all money from an estate intended for charity can flow through a donor advised fund and then be directed on to the charitable causes on file.

Donor advised funds can even serve as the interim charity of choice for more sophisticated tools like charitable remainder trusts and charitable lead trusts. Hooking a donor advised fund onto a charitable trust is a terrific way to build in donor flexibility and avoid certain irrevocable decisions around the named non-profits ultimately designated to receive the money.

For those who experience a “sudden money” event, are already active donors to charitable causes, and wish to decouple the charitable income tax deduction from the eventual grants to charity, the donor advised fund is a tool that may fit your circumstances. If you’d like to learn more, contact your Foster Group advisor. Or if you don’t have a financial advisor, contact us to set up an Introductory Meeting.

PLEASE NOTE LIMITATIONS: Please see Important Advertising Disclosure Information and the limitations of any ranking/recognitions, at A copy of our current written disclosure statement as set forth on Part 2A of Form ADV is available at

PLEASE NOTE LIMITATIONS: Please see Important Disclosure Information and the limitations of any ranking/recognitions, at A copy of our current written disclosure statement as set forth on Part 2A of Form ADV is available at