As I’ve mentioned before, one of my long-term goals is to run a foundation to support arts education, specifically music education. To do this effectively, I would require a significant amount of start-up capital, and I’m not quite there yet. I’m not quite sure that I will ever have the opportunity to succeed, but if I do, it’s likely to take decades to approach that point.
In the mean time, I’m doing what I can to have a smaller effect on some organizations whose missions are important to me. While I didn’t reach my admittedly aggressive goal for charitable giving this year — the lagging economy has convinced me to hold onto more than I would have otherwise — I increased my charity this year over last year. I have given over 10% of my salary this year, some of which was eligible for matching contributions from my employer.
For privacy reasons, I won’t release all of the names of the organizations that I contributed to this year, but they include a health-related organization, a collegiate music program, a performing arts organization, and a public radio station. The performing arts organization is the same group with which I previously severed ties, but I’ve gotten over those issues to concentrate on the people who will benefit from the contribution.
I also added funds to my charitable gift fund, a “donor-advised fund.” The fund allows me to provide money to be held in an account and invested while I recommend grants to be distributed from the fund as I see fit. The main benefit is the donor receives a tax deduction up front while the money theoretically grows. In the best case scenario, the money in the account earns returns from interest or appreciation and the grants can come from this income. Unfortunately, contributions to a donor-advised fund are not eligible for matching contributions from my employer.
Last year, I made the mistake of choosing to invest the entire amount in a total stock market index fund. The quick downturn of the market after the investment convinced me not to touch the money in this account. Rather than assign grants this year, I donated from my own cash. This month, when funding the charitable gift fund, I chose to invest half in a money market fund and the other half in the total stock market index. This way, I can tap the money in the money market fund without concern about the stock market while allowing the rest of the investment to grow for long-term charitable giving.
When the economy is ailing, charitable organizations struggle as people like me are more protective of their earnings, at least in the short-term. As I usually do, I also donated my time by volunteering with organizations this year. I’ve worked for a non-profit, and I know first-hand that the time contributed by those who believe in the mission is often appreciated beyond financial contributions. Did you contribute less money to charitable causes than you planned this year? It’s okay if you did.
I made a mistake, and I should have known better.
Last year, I struggled with coming up with a needy non-profit organization that I felt I should support through charitable giving. The indecision stems from the desire to contribute to an organization with a mission that reflected one of my passions and the lack of quality non-profits that fill that niche. By the end of the year, I decided to provide money to the Fidelity Charitable Gift Fund, which would allow me to distribute or grant my funds to the recipients I choose at a later date.
I invested these funds like I normally do. With the $5,000 I provided to fund my “mini-foundation” in December 2007, I invested in a broad market index fund. Considering I intended to use these funds, or at least a portion of these funds, throughout 2008, I shouldn’t have chosen to invest in the stock market. I should have left the money in a money market account within the Charitable Gift Fund. The account would have grown to about $5,200 by the end of December 2008 if left alone.
At this time, the account’s value is a little over $4,000, having lost about 20% so far this year. That’s $1,000 less that I have to donate to a worthy organization because I couldn’t find the right match — possibly a procrastination — and because I invested without considering my time horizon for these particular funds.
Now I feel as if I need to leave the money in there until the market recovers its losses from the last year, but it could be a long time before the index fund increases 25% from today. My goal before the end of the year is to finally select an organization worthy of my continued support and pay them directly from my available cash rather than from the Charitable Gift Fund. I’ll also continue to contribute to the Fund but I’ll set some funds aside for short-term charitable giving in addition to continuing to invest in the stock market index fund for longer-term growth.
Last week, I mentioned I met my goal for charitable giving for 2007. The modest goal, which I set for myself at the end of last year, was to provide $1,000 in support of an organization meaningful to me. This year, I decided to separate myself further from the organization I normally support, which also happens to be a former employer. It’s not that I don’t believe in what they do, but I have some issues with their methods.
I want to make sure my money helps an organization reach its stated goal, and I will only give to an organization whose goals, mission statement, and vision match my own values. In addition, it helps to have a strong knowledge of the inner workings of the organization. Unfortunately, it’s this strong knowledge that has turned away from the group I formerly supported.
This past year, I’ve had difficulty coming up with a replacement besides the pfblogs.org Financial Literacy Challenge. This has been a frustration for me, particularly because I wouldn’t mind managing an arts education foundation of some sort. While researching methods for starting a foundation — an endeavor better attempted by someone with millions of dollars ready to be dedicated and willingness to spend a lot of money just to run the foundation — I came across the idea of the charitable gift fund.
The charitable gift fund allows me to make a contribution to a general fund now without specifying a direct recipient. That also allows me to take a tax deduction for the contribution this year while taking my time to decide where the money should go. In the mean time, the funds are invested and presumably appreciated along with the rest of the stock market.
Charitable gift funds, or more specifically donor-advised funds, are organized by several brokerages and public charities. I chose the Fidelity Charitable Gift Fund thanks to its low barrier of entry (only $5,000 to open an account and subsequent investments must be at least $1,000) and its relatively low fees (0.6% including the underlying expense ratios, with a minimum of $100).
In return for the ability to take the tax deduction now, I give up my ability to manage and distribute the funds directly. However, I can recommend grants to charities as long as they are registered under regulation 401(c)3, and therefore legal non-profit entities. It would be very rare for Fidelity or any other custodian to reject a donee suggested by the donor as long as the organizations are not-for-profit and the donor doesn’t directly benefit from the organization’s receipt of the funds.
When I sent in my $5,000 to establish my donor-advised fund, I selected to invest the money in Fidelity’s Spartan 500 Index Fund (FSMKX), which carries an expense ratio of 0.1%. I could have transferred securities or other assets to the fund, but I opted to send cash. Unfortunately, they don’t support ACH transfers, so I had to write a check. A wire would have cost extra money.
Now that the fund is established, I can suggest grants at any time in amounts of $100 or more. The $5,000 I sent to the Fidelity Charitable Gift Fund is irrevocable, so it can only be used for charity. I’ve surpassed my “stretch goal” of $2,000 for 2007. In the process of establishing the fund, I sort of circumvented the most important part, getting that money into the hands of organizations for their use towards their missions. However, I’ve ensured that once I select recipients I will be contributing more than I would have otherwise.
If you’re interested in starting your own philanthropic endeavors through a charitable gift fund, here are some resources to get you started.
photo credit: johntrainor
Email this article
Print this article
