Best Way to Give Smarter: How to Use a Donor-Advised Fund (And Why Schwab Charitable Might Be Right for You)
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Why Listen to Me?
I’ve helped many clients set up donor-advised funds (DAFs) — not just to give generously, but to do so strategically. Whether you’re sitting on appreciated assets, looking to offset a large income year, or simply want more control over your charitable giving, I’ve seen firsthand how a well-structured DAF can unlock smarter giving and better planning outcomes. Investors trust my approach because I take into account taxes, timing, and long-term legacy goals — not just charity for charity’s sake.
Summary: What You’ll Learn
- What a Donor-Advised Fund (DAF) is and how it works
- Why Schwab Charitable is a top choice in 2025
- The biggest mistakes donors make (and how to avoid them)
- How to turn appreciated assets into long-term impact
- Real-life examples and use cases
- What Is a Donor-Advised Fund (DAF)?
Basic Definition + Key Features
A donor-advised fund is a charitable investment account that allows you to:
Make tax-deductible contributions today
Invest the funds for potential growth
Recommend grants to charities over time
It’s like a "charitable checking account" — but with massive tax benefits and more flexibility.
Features:
Contributions are irrevocable (once you give, you can’t take it back)
Funds can be invested in low-cost portfolios
You control when and how much is granted
Pros:
Immediate tax deduction
Flexibility to give later
Can give anonymously
Easy to use with custodians like Schwab, Fidelity, or Vanguard
Why Use Schwab Charitable?
Pros and Pricing of Schwab’s DAF
Schwab Charitable has become a go-to for investors and advisors — and for good reason.
Pros:
- Low minimums: Open with as little as $5,000
- User-friendly interface: Seamless online grant recommendations
- Investment options: Includes low-cost Schwab ETFs or custom portfolios for larger balances
- Strong reputation and transparency
- Administrative fees start at 0.60% and tier down with higher balances
- Investment expenses vary by portfolio (typically 0.05%–0.20%)
- In my experience, Schwab strikes the best balance of accessibility, control, and low cost for most affluent donors.
Common Problems DAFs Can Solve
Use Cases
Here’s a real-world example:
Case Study: Jim & Laura's Tech Windfall
Jim and Laura, a couple in their early 50s, were long-time employees of a tech firm that went public. In 2024, they found themselves with a $3.2 million windfall in company stock, most of it highly appreciated. They wanted to support causes they cared about — like children's education and global health — but were also facing a massive capital gains tax bill if they sold the stock.
Problem: They didn’t want to donate all at once, weren’t ready to manage a private foundation, and felt overwhelmed by how to give efficiently.
Solution: We helped them set up a Schwab Charitable Donor-Advised Fund with a $500,000 contribution of appreciated stock.
This move avoided capital gains tax on the stock, allowed them to take a six-figure charitable deduction in 2024 (offsetting their high-income year), and created a flexible giving platform. Over the next several years, they plan to donate around $25,000 per year to vetted nonprofits, with their DAF portfolio growing tax-free in the meantime. They’ve even begun involving their two teenage children in recommending grants, creating a legacy of thoughtful giving.
Why it worked:
-Built a long-term giving plan
I’ve worked with clients across a variety of scenarios where a DAF provided massive value:
- Selling a Business: Offset capital gains with a large donation the same year
- High-Income Year: Bonus, stock options, or windfall? Get the deduction now, give later
- Legacy Planning: Involve the next generation in grant making
- Highly Appreciated Stock: Avoid capital gains and give more to charity
Benefits:
Smoother year-to-year tax liability
Continued control over charitable impact
More strategic giving conversations with family
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
Comparisons: DAF vs. Direct Giving vs. Private Foundation
Key Differences
- Tax Deduction Timing: All three options (DAF, direct giving, foundation) offer immediate tax deductions.
- Grant Timing Flexibility: DAFs and foundations offer high flexibility; direct giving must happen all at once.
- Administrative Burden: DAFs have low admin burden, direct giving has none, foundations require extensive record-keeping.
- Setup Cost: DAFs and direct giving have low/no setup costs, foundations have high setup costs.
- Ongoing Cost: DAFs have moderate ongoing costs (starting at ~0.60%); foundations can be expensive to maintain.
- Public Disclosure: DAFs allow for anonymous giving; foundations must publicly disclose activity.
In short: DAFs give you foundation-like control without the foundation-level hassle.
How to Set One Up (and Do It Right)
Steps to Get Started
- Open a DAF at Schwab Charitable
- Fund it with appreciated assets (stock, mutual funds, etc.)
- Take the deduction in the year you contribute
- Invest the balance in a portfolio that aligns with your timeline
- Make grants over time to IRS-qualified 501(c)(3) nonprofits
Conclusion: Giving Smarter in 2025
If you want to be generous and strategic, a donor-advised fund offers the best of both worlds. And Schwab Charitable makes it easy to start small, grow your impact, and integrate giving into your financial plan.
In my experience, the most generous families I’ve worked with also happen to be the most tax-efficient. That’s not an accident — it’s smart planning.
👉 Want to learn how to retire without the worry of running out of money in retirement? Click here to watch this video
FAQs
What can I donate to a DAF?
Cash, stocks, mutual funds, ETFs, private business interests, real estate (subject to custodian review).
Can I get a deduction and wait to give?
Yes! That’s the whole point. You get the deduction the year you donate and can make grants in future years.
Are DAFs just for the wealthy?
Not anymore. Schwab Charitable lets you open one for just $5,000, and anyone with appreciated assets or charitable goals can benefit.
Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.