I have a DAF, and now that I am retired will be starting to drain it over time rather than contribute to it. I am only recently starting to use Pralana and want to be incorporate use of the DAF in the plan. I expect to be able to make charitable donations in addition to use of the DAF each year, and will be using itemized deductions in taxes each year. I want to be able to drain the DAF over most of the plan's timeframe, and completely or nearly completely exhaust it by the end of the plan. I want the outputs of Pralana to include what is occurring with the DAF so I can evaluate various options. The only way I can think of to somehow incorporate the DAF is create a ROTH IRA that will represent the DAF, so that withdrawals from the DAF are not taxable. I have set up a 'Scheduled Withdrawal' each year from that 'ROTH' to the cash account. I have set up a 'miscellaneous' expense for each year with the same amount to represent the transfer of DAF money to a charitable organization and designated that expense as NOT deductible, sine the money put into the DAF was a tax deduction at the time it was put in. The ROTH account is designated as the last account to pull money from, so as long as I do not exhaust all taxable accounts and tax-deferred accounts, Pranala would not try to pull money from that DAF as spend it on essential expenses. Conveniently (?), I have actually very little in a true ROTH account compared to taxable and tax-deferred accounts so ignoring the true ROTH account does not really throw off my plan by much.
In the output tables a scheduled withdrawal will be shown and I will know that represents the DAF transfer, and I will know that amount of the shown miscellaneous expenses is also indicating how much of the DAF was used that year. As long as the DAF does not hit zero before the end of the plan I think this should be an effective way to show utilization of the DAF.
I would like to know if anyone else has worked using a DAF into their planning, how they did it, and how it might compare to what I have set up. Also, if anyone sees a flaw in what I have done, I would much appreciate hearing about that.
@prekob DAF is in the Gold/Excel version, but not yet implemented in Online, so you can't get that granular just yet, without some trickery as you suggested. Technically, once you fund the DAF, the money isn't yours any more, being irrevocable trust and all. It's a charitable contribution in that year, so I'd go with that, which Pralana handles just fine. It really shouldn't be counted toward your net worth as it would if you model it as something else. Most of all, thank you for giving charitably!
@hines202 For us, functionally it is part of our assets we must decide how to make use of within our entire financial plan.
Those funds have not yet gone to an actual operating charity because we had more funds to donate in some years than we knew where to send to have the most beneficial impact, so stored them in the DAF for the sake of getting the useful tax deduction at that time. We still need to determine how to best use that money. It enables us to make 'real' donations to charities at this time while minimizing how much we need to pull out of our 'net worth' assets which must fund our living expenses, travel (and other) discretionary expenses, and additional charitable donations (that would get tax deductions now to offset some of the RMD taxable income). We don't want to, e.g., decide this year how to disperse the entire DAF to charities we select right now, as that will leave much reduced ability to make donations to good organizations over the rest of our lifetime. So that DAF must be part of our financial plan to determine how best to drain it within our remaining-lifetime plan.
glad to hear that Gold already can do something with DAFs, and already expected that eventually Online version will also.
We will not get another tax deduction now so just inserting as part of Pralana's Charity Expense will introduce errors into the tax determinations, and designating it as a QCD would create errors in how much Pralana creates as a RMD each year. Since you did not comment on the way I am trying to implement it, I'm assuming you did not see any specific error in how I am trying to work it in.
@prekob It's my understanding (willing to be corrected!) that with a DAF you get the tax deductibility in the year you *fund* the DAF, regardless of when you dole it out to charities. So if you put $50,000 in a DAF in 2025, that is recorded by the custodian and they provide the proper form at tax time to take that $50,000 deduction (as long as you qualify otherwise via itemizing, etc). The $50k can sit in the DAF as long as you want, you simply "manage" those assets (which are no longer technically yours, it belongs to your charitable foundation (the fund). You can dole it out to qualified charities over the course of many years, but if you pass away the beneficiary must be a qualifying charitable cause. Of course you can add funds to the DAF in later years, fund and deplete, to get tax breaks in years you may have a large tax bill otherwise.
@hines202 Yes, that is my knowledge and experience as well. While I do not 'own' that money any longer, I still have absolute control over the money within what are quite reasonable guidelines.
I am done funding the DAF, so there are no more tax deductions that will be associated with the DAF. That is why it seems like the best way in Pralana to simulate using up the DAF is insert a Scheduled Withdrawal for some fixed amount each year from a ROTH that transfers money into the cash account (but does not add to taxable income), and have a Miscellaneous Expense each year for that same amount and that expense is designated as not tax deductible. So effect on taxes is zero from using the DAF. While it would be a zero tax impact to simply use an amount in the Charity expense item, that money would come from my taxable account initially. But when the taxable account and the Tax Differed account are used up, Pralana would then start to use the ROTH as a way to fund living expenses, which would not be correct. So long as I withdraw funds from the ROTH slowly enough to not deplete it over the course of the plan this seems to model what would be done with the DAF.
Of course, the Monte Carlo analysis does not know anything about this, so if the sequence of returns is worse than average, the DAF would become fully spent out, and Pralana would continue to include the non-deductible Miscellaneous expense but get the money from one of the other accounts since the Scheduled Withdrawal would cease. This can work very well if the course of events is just as the deterministic for specified inputs course is, and potentially poorly if the course of returns is substantially worse than the deterministic analysis uses. I haven't thought of a better way to have all this in Pralana all at the same time.
It would be cleaner to just drop the DAF entirely from the Pralana plan, and when looking at the annual spending bear in mind that what is shown as going to a charitable organization within the Pralana outputs is actually greater by the amount I would plan to disperse each year out of the DAF. Just not quite as comprehensive a printed report from Pralana.
