The Advantages of Set-Asides

Funding Projects That Require Long-Term Support

Private foundations routinely make grants to support nonprofit organizations. These grants, along with qualifying expenses (like Foundation Source’s fees), may count toward the foundation’s annual minimum distribution requirement (MDR). Normally, grants and qualifying expenses are counted toward satisfying a foundation’s MDR when payment actually occurs. However, a foundation is also allowed to “set aside” an amount in one year for a specific charitable project that may be counted toward satisfying its MDR in that year, as long as the amount set aside is actually paid out within five years and certain other conditions are met.

[callout]The foundation must either obtain the IRS’s approval of the “suitability” of the set-aside, or meet certain minimum cash distribution requirements.[/callout]

Set-asides are especially useful when a foundation wants to fund an ambitious project that requires long-term financial support. Examples of such projects include:

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