A private foundation must distribute at least 5% of its net investment assets each year for charitable purposes — falling short triggers a real excise tax, not just a warning.
How it works
Multiplying average net investment assets by 5% gives the required distribution; comparing that against actual qualifying distributions shows any shortfall, and the shortfall multiplied by 30% gives the first-tier excise tax.
What this does not include
This does not include the “carryover” of excess distributions from prior years (which can offset a current-year shortfall), or the escalation to a 100% excise tax if a shortfall remains uncorrected by the IRS’s deadline.
How to use this calculator
- Enter average net investment assets and actual qualifying distributions.
Frequently asked questions
Why 5% specifically?
Congress set this floor in 1969 to prevent foundations from accumulating assets indefinitely without actually funding charitable work — 5% roughly approximates a sustainable long-run payout rate.
What counts as a “qualifying distribution”?
Grants to charities, reasonable administrative expenses for charitable activities, and certain program-related investments all generally count — but not, for example, investment management fees.
Does this apply to donor-advised funds too?
No — this specific 5% minimum distribution requirement applies to private foundations; donor-advised funds are governed by a different, separate set of payout rules.
