“Wait—I can donate to charity and invest at the same time? How does that work?” This was my reaction when I first learned about investing through a DAF. A DAF is a personal charitable account set up to hold money or securities to donate to 501(c)3 organizations. According to Fidelity Charitable, DAFs are the fastest-growing charitable vehicle in the US due to their ease of use and their many tax advantages.6 For example, let’s say you received a bonus from your employer and want to donate a portion of it to charity. You’re also not sure you will get a bonus next year, and you want to continue your giving plan. Rather than give the entire amount this year, you could open a DAF and set up grants to go to charity (or charities) over several years. The entire amount committed to the DAF is tax deductible in the current year, and while the funds are sitting in the DAF, they can grow tax free. The one caveat is the assets within the DAF can never go back to the donor.
Many people have the money within their DAF invested in stocks, bonds, or mutual funds so the funds will grow until the grants are made to the charitable organizations. However, a little-known secret is that in a self-directed DAF, the money can be invested in private companies or start-ups as well. The returns go back into the self-directed DAF, which can then be either reinvested in another start-up or donated to a charity. This allows the donor’s impact to be even greater if the start-up goes on to produce significant financial returns. This approach is also attractive for those who cannot directly invest in a start-up on their own because investing from a DAF does not require someone to meet the accredited investor requirements
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