Closing Out 2025 with My Second-Favorite Planning Strategy: Donor-Advised Funds
If Roth conversions are my first love in year-end planning, donor-advised funds are a very close second.
As we start to close out the year, I wanted to circle back on one of my favorite financial planning strategies—second only to Roth conversions. In fact, I love when we can pair Roth conversions and Donor-Advised Funds (DAFs) together. The two strategies complement each other beautifully. But I also appreciate that DAFs aren’t for everyone, which is why I always want to walk clients through both the benefits and the drawbacks.
If you’ve worked with me, you’ve probably heard me ask, “Are you charitably inclined?” That’s not a judgment—it’s a practical planning question. For clients who give regularly, our goal is to minimize taxes and maximize charitable impact. A DAF can be one of the best tools to accomplish this, and 2025 is a particularly important year to consider it.
Why Now? The OBBBA Tax Changes
Beginning in 2026, the One Big Beautiful Bill Act (OBBBA) reshapes charitable deductions:
Only itemized gifts above 0.5% of MAGI (1% for corporate donors) can be deducted.
Even the wealthiest taxpayers will face a new cap of 35% of MAGI on deductions (versus today’s 37% bracket).
This makes 2025 a “last chance” year to capture the full tax value of charitable contributions. A DAF allows you to make a large gift this year, claim the entire deduction in 2025, and then grant those dollars to your favorite causes over time.
When Does a DAF Actually Add Value?
A donor-advised fund can be powerful, but only under the right circumstances.
1. Standard Deduction Hurdle
For 2025, the standard deduction is $31,500 for joint filers and $15,750 for individuals (with add-ons for age 65+).
Unless your total itemized deductions (charity + SALT up to $10k + mortgage interest + medical, etc.) exceed these numbers, a charitable contribution alone won’t reduce your taxable income.
Translation: A $5k–$10k cash gift to a DAF usually won’t create a tax benefit by itself.
2. Appreciated Assets = The Hidden Benefit
If the contribution is made with highly appreciated stock or ETFs, you avoid paying capital gains tax on the donated shares.
This benefit is immediate and real—even if you don’t itemize deductions.
Example: You contribute $10,000 worth of stock with a $3,000 unrealized gain → you save ~$700–$1,000 in capital gains tax (depending on your rate) simply by gifting through the DAF.
3. Larger Gifts = Real Deduction Power
For high-income clients (>$500k joint or >$750k single), DAF contributions of $25k–$100k+ can push you well past the standard deduction threshold and unlock significant tax savings.
For retired clients with MAGI in the $150k–$300k range, a $25k–$50k gift can be the difference between taking the standard deduction or itemizing.
✅ Rule of Thumb:
$5k–$10k gifts: best for appreciated assets (capital gains savings).
$25k–$50k+ gifts: best for unlocking itemized deductions and maximizing the 2025 tax window before OBBBA changes.
The Double Win with Appreciated Assets
For many of our taxable accounts—especially in California—we’re sitting on highly appreciated ETF positions that we’d love to trim but don’t want to trigger capital gains taxes. By contributing those appreciated positions into a DAF, we can:
Avoid paying capital gains tax on the donated shares, and
Rebalance the portfolio by selling other positions with lower gains.
That’s a double win—tax-efficient giving paired with tax-efficient investing.
What If You’re Not Ready Yet?
Sometimes when I ask, “Are you charitably inclined?” the answer is “not really” or “not now.” And that’s fair.
But it’s also worth considering the future. Retirement often opens new doors—more time to volunteer, more connection to causes, and more opportunities to give back. What I wouldn’t advise is over-funding a DAF decades before retirement or without clear goals. But here’s an example:
My mom became very involved in Sherman Gardens as a docent and also supported Northeast of the Well after she retired. Both organizations regularly asked for contributions. Looking back, a smart strategy would have been for my parents to fund a DAF during their peak earning years. That way, she would have had a pool of charitable dollars available in retirement to respond easily to those annual campaigns and calls for giving—without impacting their fixed retirement budget.
That’s the kind of “hindsight planning” we want to bring forward—setting you up today so that future generosity feels flexible and stress-free.
The Downside to Watch For
When something sounds too good to be true, we have to ask: what’s the catch?
Here’s the main downside I see with DAFs: what if the charity you want to support isn’t available through your chosen DAF sponsor?
That’s why I highly recommend a test run: open a DAF, contribute $500–$1,000, and make a grant to the charity of your choice. That way you understand the process, confirm your charity is supported, and avoid disappointment. Once you’re comfortable, then it makes sense to do a larger contribution.
You can explore sponsors and searchable charities directly at DAFgiving360.org and their Explore Charities tool.
What We Need From You
To determine whether a DAF makes sense, the starting point is simple: we need your tax return. That lets us model the impact of charitable giving strategies in 2025 versus future years.
The Bottom Line
DAFs are not new, but the timing is. With tax rules changing in 2026, 2025 is the best year to explore this strategy. If you’re charitably inclined, a DAF gives you:
A larger deduction this year,
A flexible pool of charitable dollars for the future, and
An opportunity to align generosity with tax-smart planning.
As always, let’s make sure this is the right fit for your goals. But if you’ve been thinking about formalizing your giving, 2025 is the year to act.
If you’re a client wanting to explore this strategy before year end, schedule a call with Julie today.
Yours in planning, always,
Julie Bray
Your Family's College and Retirement Champion
GW Financial, Inc.
This content is developed from sources believed to be providing accurate information and is provided by GW Financial, Inc. It is not intended to be used as investment, tax, or legal advice. The information presented is for general education and informational purposes only and should not be construed as a solicitation or recommendation. Please consult with a qualified professional regarding your specific circumstances.
