| Donor-advised fund | Private foundation | What this means for you |
Charitable tax deductions | Maximum tax deduction available for gifts. Cash gift: 60% of adjusted gross income (AGI) limit; Securities: 30% of AGI limit. Additionally, take the fair market value deduction for non-publicly traded assets. | Reduced tax deduction available for gifts. Cash gift: 30% of AGI limit; Securities: 20% of AGI limit. Take the cost-basis deduction only for non-publicly traded assets. | When you contribute to a donor-advised fund, you can take a larger tax deduction than a contribution to a private foundation. |
Taxes on growth | All investment growth is tax-free. | The private foundation will pay a 1.39% excise tax on net investment income. | Charitable returns are reduced by taxes in private foundations, but not in donor-advised funds. |
Creation | Open an account in minutes and contribute to a donor-advised fund immediately. | Required to register with state and receive IRS eligibility, taking weeks to months for set-up. | Starting a private foundation is more time intensive. You can open a donor-advised fund account today and take an immediate tax deduction. See how Vanguard Charitable works to make donating to your DAF as simple as possible. |
Grantmaking recipients | Grants to nonprofits that support individuals such as scholarship funds, hardship funds, and missionary funds. All granting services and expert due diligence is provided by the sponsoring organization, such as Vanguard Charitable. | Grant to public and private charities as well as directly to individuals. All granting services are self-provisioned, with due diligence and granting performed by the personnel hired by the foundation. | Private foundations can grant to a wider variety of recipient types. However, all services need to be performed by the administrative staff hired by the organization. The sponsor of a DAF handles all requirements, meaning that you don't have to. |
Complex granting | Complex granting services offered, including grant agreements and recoverable grants. | Can perform complex grantmaking as supported by foundation staff, who must have the necessary expertise. | Both vehicles can provide complex grantmaking services, but the hiring of necessary staff with relevant expertise is required for a private foundation. |
Distribution requirements | Requirements are set forth by the account sponsor. Most individual donor-advised accounts are not subject to annual spending requirements, although many are required to make at least one grant every few years to maintain an active account. | Requirements are set forth by the IRS and must be met annually. Currently, the IRS requires roughly 5% of the foundation’s assets to be distributed annually. | Whereas private foundation distribution requirements are set forth by the IRS, requirements for DAFs are set by the DAF sponsor. |
Investments | Investment options are set by the sponsor. Vanguard Charitable offers a menu of high-quality, low-cost investment options that span asset classes and the risk spectrum, and are designed to maximize charitable giving. | Wide-ranging flexibility with investments (expertise and staff potentially required). | A private foundation has flexibility to choose its investment options, but some DAFs, including Vanguard Charitable, offer a lower-cost menu of investments. |
Reporting | Reporting and recordkeeping provided by the sponsoring organization. No annual reporting requirements for the donor. | Self-provision annual reporting requirements or hire personnel to perform. Required to file annual 990-PF. | A DAF sponsor will handle all reporting. The responsibility is on the private foundation for all reporting requirements. |
Cost | Fees vary by the sponsor and may be as low as the average all-in fee of .61% at Vanguard Charitable. | Fees can range significantly and can decrease charitable output. | Vanguard Charitable offers industry-low administrative and investment fees. |
