I opened a Donor Advised Fund at Fidelity Charitable!

If you’ve been paying attention, I’ve been going back and forth on whether I should put $5k in a DAF.  For a few days, I even convinced myself that I was NOT going to put $5k in a DAF. I don’t want to take $5k out of my savings account for the road trip when I have $7k in payroll deductions going to an HSA in the next 2 months and of course $5.5k going into a 2017 IRA as I always do in January. That’s basically my entire salary through the end of January.

I’m leaving my job in the month of February, though I do have 6 weeks of unused vacation pay that will be paid out. That combination of things along with DAF funding thrown in definitely would have made me feel like I need to start scrimping to make it all happen. Do I really need to be scrimping?

I reminded myself that, you know, I do have taxable investment accounts. I sometimes forget about that because I don’t want to be tempted to liquidate them for present day compulsive spending. Sure, I’ll have to pay some short term capital gains for doing this, but the donation deduction will far more than wipe those out.

I’ve actually given it a lot of thought, so, of course, I blew right past the initial $5k idea and I have in fact funded a DAF with a much higher initial $17,000 contribution.  I would guess that $17,000 is at most 25%-30% of the high end of my future annual salaries, so that’s kind of a big number.

Fidelity Charitable Contribution

Why $17,000?

When you think about what it could grow to over time…$17k today invested for 30 years. That’s a lot of future growth (and bypassed tax deductions?)…but that also means that $17,000 inside of a DAF can grow and cost me absolutely nothing additional out of my own personal portfolio. It all depends on the way you want to look at it. I’m not going to wait 30 years before I start distributing grants though.

Fidelity Charitable and Schwab Charitable both have minimum DAF investment balances of $5k, but they also both charge a minimum administration fee of $100 per year. $100 per year is 2% of $5,000. That’s a lot. In case you were wondering, $16,680 is the initial contribution number that you need to contribute to be maximize the efficiency of that minimum $100 annual fee. At least for the first year. So I rounded up to $17,000 to give it some wiggle room.

I’d say that $1,000 per year in today’s dollars is absolutely on the low side of what I would expect that I will personally donate to charitable causes per year over the course of the next 17 years. 17 years from now conveniently being the year that I turn age 48. I can’t imagine I’ll be in the traditional workforce too much longer past 48 unless something goes terribly wrong in my personal financial planning, or I happen to find a job that I absolutely LOVE. The latter sounds like a pretty good problem to have.

I’m already giving away more than $1,000 per year. Last year I gave away between $1,500 and $2,000. Against my income, that doesn’t seem like very much to me, but for the average person with my AGI, apparently that is pretty average.  My lifestyle costs are pretty low and I don’t really see that changing. I know it’s hard for some people to fathom, but spending additional money on myself just doesn’t make me any happier. My baseline spending includes so much luxury in my eyes. I mean, I hadn’t really cooked any meals at home during my entire adult life until a couple months ago.

I can feel good about giving at a younger age. If I lose a limb and can no longer work? No big deal finances-wise. That’s why I have a very robust disability insurance policy in place that costs me over $1,500 per year. And, in that unlikely scenario, it will replace the income from my current job, not the income from my next presumably lower paying job. And if I *DON’T* remain single? The compatible woman for me just isn’t going to hold it against me that I decided to actually be charitable instead of indulge myself on upgrading my car or whatever.

Right now, I have close to $15,000 saved in cash for the road trip. It should be over $20,000 before I hit the road depending on year end dividends and what my actual spending looks like through the end of February. Honestly, I’d be shocked if I plow through $20,000 on the road trip which is essentially intended to last from March through FinCon in October or slightly after that, weather permitting. I think everyone is going to see from my road trip expense reports that travel is so much cheaper when you’re not flying on airplanes and sleeping in chain hotels. Especially when you slow it down and stay in places for longer periods of time. But I admittedly can’t know for sure and I’m not intending to intentionally scrimp for the sake of being able to say that I had the cheapest road trip possible.

The tax deductions are most likely going to be far more valuable to me today, so why not frontload? The more it grows, the more it benefits charity over the course of my remaining life. Booming market = more charity. Horrific market = less charity. Isn’t that how most normal age retired people have been making charitable decisions for decades upon decades upon decades? At some point, this is going to grow big enough that it’s self sustainable under the 4% rule.

Unless I get accidentally promoted into management somewhere, there’s a very real possibility that I am never going to itemize my tax deductions ever again. Unless I see huge growth in my tax-deferred accounts which produce massive RMD’s way in the future. That’s a problem that Septuagenarian TJ can worry about.  I’m more likely to utilize Roth conversions or a 72t penalty-free early withdrawal than have a massive RMD, but you never know. Why? To be able to itemize you generally need to have a massive mortgage or very high state income taxes.

Even with a $17k lump today, I can’t imagine I don’t make subsequent contributions to my DAF. (Even if I don’t get a tax deduction for doing so. Shocker.)

I’m very thankful that the federal and state governments encourage charitable giving, and for me, it has basically planted 1/3 of the seed money into my own personal charitable fund. Thanks government. Thank you my fellow American tax-paying citizens.

Why Fidelity?

Primarily convenience, but also surprisingly, rock bottom fees on the investment.

Convenience because the financial asset was already in my Fidelity brokerage account. Less paperwork to deal with. It’s pretty close to the end of the year, so I would assuming using the one affiliated with your brokerage speeds things up a bit.

Rock Bottom Fees? Fidelity Charitable puts you in the Institutional Premium share class of the U.S. Total Stock Market Index. By the way, check out that $100,000,000.00 share class fund minimum. No way I could hit that outside of the DAF. 1.5 bps! That’s 70% lower in index fund management fees than the Vanguard Admiral Share Class for tracking the same index. Lower fund management fees = more growth for charity. Theoretically.

PhysicianOnFIRE Made Me Do it. Blame Him. I mean…Credit Him!

I recently thought that PhysicianOnFIRE put me to shame with his $100k DAF donation. It almost made me feel like I shouldn’t bother. I just don’t have the means to drop $100k into a DAF. I figured I’d let the “rich people” bother with that kind of stuff. In the end, did PoF challenge me to think bigger? PoF  had one sentence which I think sums up my rationale for doing this today: “Unless you plan to never give, it doesn’t matter much if you give now or later.” So….might as well take the tax savings. Might as well start making a difference sooner.

As of December 13, 2016, my net worth was $17,000 less than it was on December 12th, 2016. I’ve legally transferred those assets from my own personal brokerage account to my own personal giving fund inside of Fidelity Charitable, a 501(c)3 public charity. However, I feel just as “rich” as I did on December 12, 2016. When I log into my Fidelity account, I even see this account listed right alongside the checking account I don’t use, my two Fidelity credit cards, and my Fidelity brokerage account:

Fidelity Accounts

It didn’t disappear into the abyss. It’s not even currently benefiting any particular cause. I just can’t spend it on myself. I can control how the funds are invested. Who gets to control how the funds are distributed? I do, so long as it’s distributed to a legitimate 501(c)3 charity. In the eyes of the government, I gave it away. But how does it really look in everyone else’s eyes? I’m not so sure.

How will I distribute the funds? That’s to be determined. I’ll have plenty of time to think about specific charities over time. It’s not like there’s a shortage of causes. Disaster relief always seems like a good idea. Of course, like everyone else, I have certain non-profit initiatives that I’m passionate about.

Indeed, it doesn’t feel like I’ve lost anything. If anything, I’ve created some new excitement in what has been a fairly boring personal financial life because I’m going to have to work or somehow generate growth/income to bring back my personal portfolio back to the level that it was  on December 12. Or maybe Mr. Market will do all of that for me. Wouldn’t that be nice.

With this “setback”, I’m still going to retire before the vast majority of people my age retire. Not that it is a race.  Regardless of my eventual early retirement, I’m far more interested in creating a sustainable lifestyle that I don’t feel the need to immediately retire from. That is – I’m not opposed to working and to me, 24/7 entrepreneurship would be so much worse than 9-5 employment. For me, my sustainable life also includes some form of philanthropy. So a DAF makes sense in the long run.

I hope this shows that the road to financial independence doesn’t have to come at the expense of philanthropy. It’s not an either or decision. You can do both.

For those who can afford to give and are already over the standard deduction (or are close to it) with income taxes and/or property taxes for this tax year, I would challenge you to recognize the fiscal opportunity of having the government subsidize some future charitable giving on your behalf today in the form of a DAF. It’s an incredibly good deal. Especially when you think about all the people who generously give but will never see a tax deduction for it.

Who else wants to hop aboard the giving train before the end of the year? You still have time!