More individuals incorporate charitable giving goals into their overall financial and investment strategy. Two common vehicles people use to support their philanthropic passions are donor-advised funds (DAFs) and private foundations.
But which one is most appropriate for your charitable giving goals? While there is no one-size-fits-all answer, the first step lies in understanding the key differences between these options.
Donor-Advised Fund: Turnkey simplicity, low costs
Think of a DAF as a charitable account that enables you to initiate, invest, and distribute charitable gifts. A DAF may be ideal for individuals who want a simple, efficient, and cost-effective platform for managing their charitable giving.
Simple setup
Creating a donor-advised fund is quick and can usually be done online via a public sponsoring charity like T. Rowe Price Charitable.
Recommend grants at your convenience
While assets held in a DAF are legally owned by the sponsoring charity, donors (or their designees) may recommend grants from their DAF to IRS-qualified public charities of their choice.
Invest contributions for potential growth
Sponsoring charities typically offer an array of investment options for donors to choose from. For example, T. Rowe Price Charitable’s investment pools are composed of funds managed by T. Rowe Price. Investment earnings are credited to the DAF, allowing the donor’s contributions to potentially1 grow tax-free, which can compound resources for future grantmaking.
Private Foundations: Regulatory complexity, higher costs
Families or corporations typically establish private foundations to support charitable activities. A private foundation may be the ideal vehicle for donors who want greater control over grantmaking and investment decisions and who are willing to accept greater complexity and costs to achieve that control.
Creating a 501(c)(3) nonprofit
Establishing a private foundation involves creating a legal nonprofit entity in accordance with state law requirements. The foundation must apply for Section 501(c)(3) exemption from the IRS, a process that can take several months.
Regulatory requirements and filings
Private foundations require a higher degree of transparency and regulatory adherence. For example, they are required to file an annual IRS Form 990-PF disclosing the names of donors and amounts of all donations, as well as a listing of all grants. In addition, they must make annual charitable distributions equal to 5% of their net investment assets.
Comparing Donor-Advised Funds and Private Foundations
Convert a Private Foundatin to T. Rowe Price Charitable
Some individuals find that the costs and complexities of maintaining a private foundation outweigh the benefits of having greater control. This is particularly true for foundations that are winding down or when the original donor is no longer involved with the foundation. The good news is that a DAF like T. Rowe Price Charitable is ideal for these situations. A private foundation can convert to a DAF with relative ease, and most sponsoring charities can assist a private foundation with the process. Contact T. Rowe Price Charitable to get started.
Compare giving vehicles to find the right fit.
1 All investment pools are subject to market risk, including possible loss of principal.
2 Publicly and nonpublicly traded assets held for over a year are generally deductible at fair market value.
3 Publicly traded assets held for over a year are generally deductible at fair market value, while nonpublicly traded assets are generally deductible only at basis.
T. Rowe Price Charitable is an independent, nonprofit corporation and donor-advised fund founded by T. Rowe Price to assist individuals with planning and managing their charitable giving.
© 2024 T. Rowe Price Charitable, Inc. All Rights Reserved. T. ROWE PRICE and T. ROWE PRICE CHARITABLE are trademarks of T. Rowe Price Group, Inc.
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