Donor Advised Fund: Step-by-Step

Why: A DAF works best when you already give to charity, or plan to, and when you have a year where the deduction is especially valuable.

What to do:

• Look at your income for the current year. Physicians often have years where income spikes well above the norm. A productivity bonus, an RVU true-up, a partnership distribution, a Roth conversion, an RSU vest at a hospital system, or the sale of a practice can push you into the top bracket. The deduction is worth more in those years than in a normal year, so the timing of the DAF contribution matters.
• Look at your charitable giving pattern. If you give a few thousand dollars a year and don't itemize, a DAF probably isn't the right tool. The standard deduction already covers you. DAFs make the most sense when you give enough to itemize, or when you can "bunch" several years of giving into one year to push yourself over the standard deduction. As mentioned, this is a particularly useful way to exceed the new 0.5% of AGI floor for charitable deductions.
• Starting in 2026 there is also a small deduction for people who do not itemize, up to $1,000 of cash gifts ($2,000 married filing jointly). Gifts to a donor advised fund do not count for that deduction, so if your giving is small and you take the standard deduction, give directly to the charity instead.
• Look at your taxable investment account. Physicians who've been maxing out a brokerage account for years (after maxing retirement plans) usually have appreciated index funds, ETFs, or individual stocks held long term. Those are ideal DAF contributions. You avoid the capital gains tax you'd owe on selling them, and you still get a deduction for the full fair market value. If you've held employer stock from a hospital system or have RSUs that have vested and run up, those are also strong candidates.

Why: The sponsor holds your money, processes your grants, and provides the tax paperwork. The right one depends on how much you plan to contribute, what you want to donate, and what kind of investment options matter to you.

What to do:

• The main national sponsors are Fidelity Charitable, Schwab Charitable, and Vanguard Charitable. All three are well-established, have low or no minimums to open (Vanguard requires $25,000 to start), and handle the basics well.
• Fidelity Charitable and Schwab Charitable have the easiest setup if you already have a brokerage account with the parent company. You can transfer appreciated securities in-kind with a few clicks, which matters when you're trying to get a transfer done before year-end and you're working between cases.
• Vanguard Charitable has slightly higher minimums but lower fees on larger balances, so it tends to make sense for accounts above a few hundred thousand dollars.
• Community foundations are another option. If you want local expertise, more personalized service, or you plan to give heavily to charities in your region (your medical school, a local children's hospital, faith-based organizations, community health programs), a local community foundation can be a good fit. They usually have higher fees than the national sponsors but offer more hands-on help.

To open the account: fill out the sponsor's application online, name the account (something like "The Smith Family Charitable Fund"), and designate successors who can recommend grants after you're gone. This is a useful estate planning piece. Many physicians name their adult children as successor advisors so the charitable giving continues across generations.

Why: This is the action that triggers the deduction. Timing and asset choice matter a lot here.

What to do:

Decide what to contribute. In order of tax efficiency:

• Long-term appreciated securities are the best choice. You deduct the full fair market value and you skip the capital gains tax you would have owed on selling them. For a physician in the top federal bracket plus state, that capital gains tax can run over 30% in some states. Donating the stock instead of selling it and donating cash is a real, measurable savings.
• Cash is simple and gets you the full deduction, but you're using after-tax dollars that could have come from a more tax-efficient source.
• Private business interests, real estate, and other complex assets can also be contributed to a DAF, but only the larger sponsors handle these well, and the process takes longer. If you own equity in your practice and are heading toward a sale or partnership buyout, contributing some of that equity to a DAF before the transaction is a powerful move. It has to be set up carefully, with the sponsor involved well in advance, before any binding sale agreement is in place.

Decide how much to contribute. Two common approaches:

• The "single high-income year" approach: You contribute a large amount in a year where your income is unusually high, take the full deduction against that income, and grant the money out to charities gradually over the following years. This works well for the year you sell your practice, the year a big RSU tranche vests, or the year you do a large Roth conversion.
• The "bunching" approach: You contribute two, three, or even five years of planned giving in one year, itemize that year, then take the standard deduction in the years you're granting the money out. This is especially useful now that the standard deduction is high enough that a physician giving $10,000 to $20,000 a year may not get any tax benefit from it on an annual basis. This is particularly useful beginning in 2026, when charitable contributions are limited to the amount exceeding 0.5% of your Adjusted Gross Income. So, for example, say your adjusted gross income is $1M. That would mean you would only get an itemized deduction for charitable contributions to the extent your contributions exceed $5K (0.5% X $1M). If you were going to give $4K to charity each year over the next 5 years and your income is projected to stay consistent, that would mean you would not receive an itemized deduction for those contributions since the $4K is less than 0.5% of your AGI. This is where a Donor Advised Fund could really come in handy.

Rather than give $4K over the next 5 years, you could instead make a donation of $20K to your DAF today and get the tax deduction and then disburse the $4K from your DAF over the next 5 years (or however you want) to satisfy your giving needs.

Also new for 2026, if you are in the 37% bracket, itemized deductions (including charitable gifts) reduce tax at a maximum rate of 35 cents per dollar. Large gifts still save real money; the top slice is just capped slightly below your bracket rate. We factor this into sizing.

Make the contribution before December 31 to get the deduction that year. For securities, give yourself time. Transfers can take a week or two, and brokerages get backed up in late December. Aim to initiate transfers by mid-December at the latest. If you wait until December 29 and you're on call, it's not getting done.

Deduction limits to know: cash contributions to a DAF are deductible up to 60% of your AGI in the year you contribute. Appreciated securities are deductible up to 30% of AGI. Anything over the limit carries forward for five years.

Why: The money sitting in the DAF can grow tax-free until you grant it out. If you're giving over many years, that growth is meaningful.

What to do:

• Each sponsor offers a menu of investment pools. They range from money market funds to balanced portfolios to all-equity portfolios.
• Match the investment allocation to your giving timeline. If you plan to grant everything out within a year or two, keep it conservative. If you're planning to give from this account over a decade or more, which is common for physicians who fund the DAF mid-career and plan to give from it through retirement, you can take more equity risk and let the balance grow.
• For larger DAF balances (typically $250,000 and up at the national sponsors), you can name your own financial advisor to manage the account in a separate investment pool. If you already have an advisor managing the rest of your portfolio, this keeps everything coordinated.

Why: This is the part you actually feel, supporting the causes you care about, often with more impact than writing small checks every year.

What to do:

• Log into the sponsor's portal and search for the charity you want to support. The sponsor verifies it's a qualified 501(c)(3) and processes the grant.
• You can grant anonymously, in your name, or in the name of the fund. You can set up recurring grants. You can also recommend grants to multiple charities at once. A lot of physicians use the DAF to support a mix of their medical school or residency program, faith organizations, local charities, and medical mission work.

A few things you can't do, because the IRS doesn't allow it: you can't use a DAF grant to pay for anything you'd receive a personal benefit from. That includes the non-deductible portion of a gala ticket, school tuition for your kids, country club dues, or membership benefits at the museum. You also can't use a DAF to fulfill a legally binding pledge you made personally before the DAF existed. If you've already signed a pledge to your medical school's capital campaign, talk to us before granting from the DAF to satisfy it.

There's no deadline to grant the money out. The sponsor will send reminders if an account goes inactive for a long time, but legally the money can stay in the DAF and grow for decades.

Why: You'll need documentation for your tax return and to track the account over time.

What to do:

• The sponsor sends a confirmation letter for each contribution. Keep these with your tax records. They serve as your substantiation for the deduction.
• For contributions of appreciated securities over $5,000, you generally don't need a qualified appraisal because the securities are publicly traded. For non-cash contributions like real estate or practice equity, you do, and the sponsor will guide you through the process.
• The sponsor also tracks all grants made from the account and provides annual statements. You don't get a deduction for the grants themselves (you already took it when you funded the account), but the statements are useful for your own records.