Where Mission Meets Money

Formulating a Foundation Spending Plan

A spending plan isn’t just a “grantmaking budget”—although it’s certainly that. First and foremost, it’s a plan. Many foundation boards have difficulty translating their big-picture goals into smaller, achievable steps that will move them forward. A spending plan, which budgets for each area of interest, helps to narrow the universe of funding possibilities and guide decision-making. So, how do you create a good spending plan?

Before you discuss what you want your spending plan to accomplish, you might want to address what it must accomplish. As you’re probably aware, the IRS requires private foundations to distribute a minimum of 5% of the previous year’s net average assets annually. This is colloquially known as the “minimum distribution requirement” or “MDR.” Although there is no limit to how much a foundation can give, it must distribute at least the MDR in order to avoid penalties.

In developing your spending policy, it makes sense to start with the MDR because many of your decisions will stem from whether you want to meet or exceed it, what you’ll count toward its satisfaction, and even whether it pertains to your foundation at all.

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