Calculating the Required Minimum Distribution: A Guide for Private Foundations

As the trustee of a private foundation, you carry a responsibility that extends far beyond approving grants. One of the most critical compliance requirements under the IRS tax code is ensuring that your foundation makes its required minimum distribution (RMD) each year. Falling short—even unintentionally—can trigger IRS penalties, draw unwanted scrutiny, and disrupt your carefully planned charitable impact. 

At BryMar CPA, we know that trustees like you want peace of mind: clear guidance, accurate calculations, and confidence that your 990-PF and financial statements reflect full compliance. 

Why the Minimum Distribution Matters 

The IRS requires most private foundations to distribute at least 5% of the average fair market value of their non-charitable-use assets each year, primarily in the form of qualifying grants and related expenses. 

For trustees, this rule isn’t just a box to check: 

• Compliance is non-negotiable – Miss the threshold, and your foundation faces a 30% excise tax on the shortfall. 

• Transparency is key – Form 990-PF disclosures make your numbers public, and accuracy protects your reputation. 

• Strategic planning pays off – Done well, RMD calculations align with your foundation’s mission, smoothing cash flow and grant-making. 

How to Calculate the Minimum Distribution 

The IRS’s formula can feel overwhelming, but it essentially boils down to three steps: 

1. Determine the foundation’s investment assets 

   1. Exclude assets used directly for charitable purposes (e.g., an office used for program staff). 

2. Calculate the average monthly fair market value of those assets 

   1. This typically means pulling values at the end of each month and averaging them. 

3. Apply the 5% rule 

   1. Multiply the average by 5%. This is your minimum distributable amount for the year. 

Additional considerations include: 

• Carryovers – If you distributed more than the minimum in prior years, you may be able to apply the excess. 

• Qualifying expenses – Administrative expenses directly tied to charitable activities count toward the requirement. 

• Timing – Distributions must be made by the end of the following year, but careful scheduling avoids cash crunches. 

Common Pitfalls for Trustees 

Even seasoned trustees run into trouble with: 

• Misclassifying assets as charitable-use when they don’t qualify 

• Forgetting to apply carryovers properly 

• Failing to document grant payments with adequate records 

• Overlooking eligible administrative costs that could ease the burden 

Each of these mistakes can lead to over-distribution (less capital for future giving) or under-distribution (IRS penalties and compliance issues). 

How BryMar CPA Can Help 

At BryMar, we specialize in supporting private foundations with compliance-driven services that simplify these requirements: 

• Audit preparation & reviews – Ensuring disclosures align with IRS standards and best practices 

• Form 990-PF preparation with audit – Accurate, timely filings that reflect your foundation’s good work 

• Bookkeeping & advisory – Keeping your financial picture clear so RMDs are calculated correctly and strategically 

We know your reputation, legacy, and mission depend on getting this right—and we’re here to make it simple. 

Take the Next Step 

Don’t let compliance concerns distract you from your foundation’s purpose. Partner with BryMar CPA to ensure your required minimum distribution is calculated accurately and strategically—so you can focus on impact, not IRS scrutiny. 

👉 Contact us today for a consultation and let’s make your accounting and tax compliance are smooth and stress-free.