What’s the Difference and Why It’s Important
Both Donor Advised Funds (DAFs) and Designated Funds are wonderful charitable giving options at Aspen Community Foundation (ACF), but there are a few important differences, particularly when using a Qualified Charitable Distribution (QCD) from an IRA.
Donor Advised Fund (DAF)
When you contribute to a DAF at ACF, you are generally eligible for a charitable income tax deduction, subject to applicable tax rules. The assets remain in your fund until you, as the fund advisor, recommend grants to the nonprofit organizations you wish to support. You have the flexibility to recommend grants whenever you choose.
However, QCDs from an IRA cannot be contributed to a DAF.
Designated Fund
A Designated Fund is an excellent option for charitable giving through a QCD. If you are age 70½ or older, you can direct a QCD from your IRA to an eligible Designated Fund at ACF. The distribution is generally excluded from your taxable income and can also satisfy all or part of your annual Required Minimum Distribution (RMD), if applicable. Because the QCD is excluded from income, you do not receive an additional charitable income tax deduction.
With a Designated Fund, you identify the specific nonprofit organization(s) you wish to support and the amount or percentage each should receive annually. You can specify in the agreement the timing, and ACF then administers those grants on your behalf.
For example, if you regularly support five favorite nonprofits each year, you can name those organizations in your fund agreement. ACF will ensure that the annual grants are distributed according to your wishes. You can also choose to distribute only a portion of the fund’s assets each year, allowing the remaining assets to continue supporting your charitable goals into the future.
You may make additional contributions to your Designated Fund over time, including future eligible QCDs.
An Added Benefit: Your Charitable Legacy
A Designated Fund can also be a meaningful part of your legacy planning. By establishing the fund now, you can ensure that the organizations you care about continue receiving support beyond your lifetime, according to the instructions you establish with ACF.
The Main Difference
A DAF offers flexibility in choosing when and where to recommend grants, while a Designated Fund provides a structured approach to supporting specific nonprofits annually. Both offer the benefit of ACF’s stewardship and grant administration.
Designated Funds are often an overlooked charitable giving option, particularly for donors who already know which organizations they wish to support each year.
Still have questions? The Team at ACF is always happy to help you find the approach that best aligns with your charitable goals.
