Investment Assets (Average Monthly FMV)
Average of monthly FMV per IRS Form 990-PF Part X.
Distributions and Income
Grants, program-related investments, set-asides.
Qualifying admin costs (not investment mgmt).
For excise tax calculation (IRC 4940).
Excess from prior years (up to 5-year carryforward).
Your Results
Enter foundation assets and distributions to calculate payout compliance.
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What This Calculator Does
This foundation payout rate calculator determines whether a private foundation meets the IRC 4942 mandatory 5% annual distribution requirement. You enter the average monthly fair market value of investment assets, cash, liabilities, qualifying distributions (grants and program-related investments), and reasonable administrative expenses. The calculator computes net investment assets, the minimum payout amount, the actual payout rate, and any excess or shortfall. It also calculates the excise tax on net investment income under the 2026 flat 1.39% rate (IRC 4940).
The Formula
Net investment assets are calculated as the average monthly fair market value of all investment securities, real estate, and other assets held for investment, plus cash and cash equivalents, minus acquisition indebtedness and other liabilities attributable to investment assets. The 5% minimum distribution is applied to this net figure. Qualifying distributions include grants to public charities, program-related investments (PRIs), set-asides approved by the IRS, and reasonable administrative expenses directly related to charitable activities (not investment management fees). The excise tax on net investment income was simplified to a flat 1.39% rate, replacing the former two-tier system.
Step-by-Step Example
Enter asset values
Investment assets FMV: $10,000,000. Cash: $500,000. Liabilities: $200,000. Net investment assets: $10,300,000.
Enter distributions
Qualifying grants: $520,000. Reasonable admin expenses: $80,000. Total qualifying: $600,000.
Check compliance
Minimum required: $515,000 (5% of $10.3M). Actual payout: $600,000 (5.83%). Excess: $85,000.
Calculate excise tax
Net investment income: $350,000. Excise tax at 1.39%: $4,865.
Real-World Use Cases
Foundation CFO Year-End Compliance
Calculate whether the foundation has met the 5% distribution requirement before December 31 to avoid the initial 30% excise tax on undistributed income and plan additional grants if needed.
Board Grant Authorization Planning
Determine the minimum grant budget for the upcoming fiscal year based on projected asset values so the board can authorize sufficient distributions early in the year.
Investment Committee Asset Allocation
Balance investment returns against the 5% payout requirement and 1.39% excise tax to ensure the foundation can meet distributions without liquidating assets at unfavorable times.
Common Mistakes to Avoid
Using year-end FMV instead of average monthly FMV. The IRS requires the average of monthly fair market values throughout the year, not a single point-in-time snapshot. This can create a significant difference in volatile markets.
Including investment management fees as qualifying distributions. Fees paid to investment advisors, custodians, and portfolio managers are not qualifying distributions. Only expenses directly related to charitable activities count.
Forgetting that the 5% minimum is based on the prior year asset values (for most foundations). The distributable amount is generally calculated using the prior tax year average FMV, not the current year.
Not planning for the excess carryforward. Excess distributions can be carried forward for up to 5 years and applied against future minimum requirements. Track this carefully to optimize multi-year distribution planning.
Frequently Asked Questions
Accuracy and Disclaimer
This calculator provides estimates for planning purposes. Foundation excise tax and distribution requirements under IRC 4940-4942 are complex. The 2026 rates and rules referenced here are based on current law. Consult with a tax advisor experienced in private foundation compliance for specific guidance on your distribution calculations and Form 990-PF filing.
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