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Betterment Adds Charitable Giving Feature in Time for Year-End Tax Moves

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Betterment, the largest independent robo-advisor, is adding a charitable-giving feature to its platform, allowing investors to donate appreciated portfolio shares directly from their accounts to a number of charities for no fee. Advisors who use Betterment’s advisory platform can also access the feature on behalf of their clients.

The feature, known as Betterment Charitable Giving, will launch on Nov. 28, aka Giving Tuesday, when people are encouraged to donate to nonprofits following what are traditionally the busiest shopping days of the year, Black Friday and Cyber Monday.

(Related: The Right Time to Rebalance — and Give to Charity)

Eleven charities are initially partnering with Betterment Charitable Giving, including well-known ones such as UNICEF,  Save the Children and the World Wildlife Fund and lesser known groups like GiveWell and Donors Choose. More charities will be added in the future, says Alex Benke, vice president of Advice and Investing. (A full list of the charities can be found at the Betterment website.)

(Related: Changes in Washington Are Fueling a Charitable Giving Boost)

The new service is being offered just in time for investors to take advantage of tax savings before the end of the year.

After a strong year in the stock market, investors are likely to have substantial unrealized capital gains in the ETFs held in their Betterment accounts. If they’ve held the shares for more than one year and donate them to one of the participating charities, they can deduct the full market value of the shares from their taxes without recognizing any taxable gain and the recipient organization will receive the full market value of the donation. If the investor sells the shares instead to donate the cash, she has to realize the gain and pay the 15% long-term capital gains tax, which would reduce the size of the donation.

“This is a tax-smart smart strategy that advisors have been doing for a long time,” says Benke. “Now it can benefit anyone, even the smaller investor who might not have known about it.”

Investors and advisors who want to use the new service just need to log on to their customer account, choose a charity among the 11 that are currently participating and specify the size of the gift in dollar terms. Betterment will estimate the tax benefit for the investor, based on his or her tax bracket, and choose the shares to transfer to the charity, including fractional shares. Betterment will donate those shares that have the greatest gains in order to maximize the tax benefit and size of the gift. The transfer takes just a minute or two and only shares that have been owned for more than a year and therefore qualify for long-term capital gains will be sold, says Benke. 

This latest offering from Betterment fits well with its broader goal “to help manage important aspects” of its customers’ lives, according to a statement from CEO Jon Stein. “We’re launching the Charitable Giving service to provide a vehicle that makes the giving process easy, accessible, and even more impactful.”

Betterment currently has $11 billion in assets under management from more than 300,000 customers. Between 400 and 500 RIAs use the Betterment for Advisors service.

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