Imagine offering your clients a solution that simplifies their year-end tax planning, enhances their charitable impact, and strengthens your role as their trusted advisor—that’s the power of donor-advised funds (DAFs) this Giving Season. DAFs are one of the most effective tools for strategic, tax-efficient charitable giving.
At Ren, we make it easy to set up a DAF with a seamless, advisor-friendly process. Renaissance Charitable, our sponsoring charity, currently supports over $4 billion in DAF assets for financial firms and nonprofits nationwide.
Here’s how DAFs deliver value for your clients: Contributions are immediately tax-deductible, providing significant 2024 tax benefits while giving your clients the flexibility to thoughtfully plan their charitable giving over time. It’s a win-win for both financial and philanthropic goals.
Why timing matters
If your client is considering contributing non-cash assets like business interests, real estate, or fine art, starting the conversation early opens up even more opportunities to maximize the benefits. Let’s collaborate now to ensure every step is handled smoothly and efficiently.
Turn year-end opportunities into lasting impact with DAFs
As the year wraps up, clients often face financial decisions that require innovative solutions. DAFs are the fastest-growing charitable giving tool in the U.S., offering unmatched flexibility and helping clients address a variety of year-end financial goals while creating a legacy of giving. Here’s how DAFs can enhance their plans:
- High-earnings year: Offset increased income, like Michael and Katelyn Connor did.
- Taxable events: Minimize taxes on windfalls while maximizing charitable impact.
- Roth conversions: Smooth the tax impact of IRA conversions to Roth IRAs, as Mike and Julie Snapp accomplished.
- Bunching charitable deductions: Optimize deductions by consolidating multiple years of giving.
- Portfolio rebalancing: Transform gains from portfolio adjustments into impactful gifts.
- Capital gains relief: Donate appreciated securities to eliminate taxable gains and maximize giving.
- Streamlined tax reporting: Simplify year-end tax preparation with a single statement.
Success stories: Real-world scenarios
Michael and Katelyn Connor recently saw their annual earnings hit a high note. And then came the sour note: the projected tax impact of their bump in income. Similarly, Mike and Julie Snapp were excited by the long-term benefits of converting an IRA to a Roth – until they realized the short-term cost of that shift: more than a million dollars in additional income taxes. Fortunately, the Connors and Snapps worked with their wealth advisors to forge strategic approaches to these conundrums, and found they not only could reduce their tax bills but, at the same time, could benefit charities they believe in.
The Connors story
The Connors’ financial team saw a way out. By creating a DAF for their charitable giving and transferring $50,000 in appreciated securities to that DAF, the Connors would benefit in two ways on their taxes: They would avoid the capital gain on the appreciated securities and have a qualified charitable deduction against their adjusted gross income.
For a recent year, the Connors saw their projected adjusted gross income rise to $200,000. For a couple with a total net worth of $2 million, including qualified retirement accounts and other investments, they found themselves with an anticipated income tax bill of $43,000.
Let’s look at the numbers:
The $50,000 contribution to the DAF provided a $50,000 income tax deduction and current income tax savings of $14,000. Michael and Katelyn also avoided $6,000 in state and federal capital gain taxes on the highly appreciated securities transferred to their DAF, for a total tax savings of $20,000.
The Snapps story
Michael and Katelyn see additional advantages to this approach. With the DAF in place, they can use it to engage and educate their children about the importance of charitable giving by including them in the process of granting DAF funds and allowing them to make recommendations about the DAF’s distributions to charities. With this experience, the Connor children will be well-equipped to assume the grant making upon Michael and Katelyn’s passing.
Mike and Julie Snapp are at a different stage in life. They’re both 75 and they’re looking for ways to reduce their ongoing tax burden in retirement. As such, they are thinking about converting their $3 million IRA to a Roth IRA. However, converting the entire IRA would create an additional $1,018,000 income tax hit in addition to a required minimum distribution (RMD) of $122,000.
A strategy with a DAF at its core offers the opportunity to reduce the Snapps’ tax hit and help to fund the RMD.
The Snapps’ financial advisor suggests a plan that combines the Roth Conversion, RMD, and normal charitable giving. (Mike and Julie give about $20,000 each year to their church, college, and a local museum, and they plan to significantly increase those gifts in the future.) Their advisor’s suggestion: Execute a $1 million Roth Conversion and withdraw another $1.5 million from their IRA to cover their RMD and create a $1 million DAF.
Let’s look at the numbers:
By establishing a $1 million DAF, the Snapps reduced their income tax liability by $533,000 while funding their Roth conversion. Their DAF not only covered immediate needs but also created a lasting charitable fund to support the causes they care about most.
A world of possibilities await
DAFs unlock a wealth of opportunities for your clients to achieve their financial and philanthropic goals. Whether they’re navigating a high-income year, a portfolio adjustment, or planning for retirement, a DAF is a powerful, flexible tool that ensures their giving is as impactful as possible.
Let’s work together to make this Giving Season unforgettable for your clients. Download our advisor’s year-end year-end giving timeline, or talk to our experts at Ren to explore how Ren and Renaissance Charitable Foundation can support your clients’ charitable giving journey.
