Overview · 3 min read
Private foundation or donor-advised fund?
A private foundation gives your family control and a lasting name, at the cost of setup, annual filings and lower deduction limits. A donor-advised fund is simple and cheap but gives you less control.
- Who it fits
- Families planning large or multi-generational giving.
- Figures
- 2026 tax year
The key rule
Foundations must distribute about 5% of their assets a year, pay a small excise tax on investment income and file Form 990-PF publicly. Donor-advised funds have none of these requirements.
How it works
| Donor-advised fund | Private foundation | |
|---|---|---|
| Setup | Same day | Weeks to months |
| Deduction limit, stock | 30% of AGI | 20% of AGI |
| Control | Recommend grants | Full control, can hire staff |
| Privacy | Private | Public filings |
| Yearly payout | None required | About 5% |
3 steps
Decide what you want
Hiring family, making grants to individuals or running programs requires a foundation. Simple grants to charities do not.
Compare costs
Foundations need legal setup, accounting and yearly filings.
Start with a donor-advised fund if unsure
You can add a foundation later.
Example
A family foundation
After a company sale, a family puts $5 million of stock into a private foundation. They deduct it up to 20% of income a year, with a five-year carryforward. The foundation must grant about $250,000 a year, can pay a reasonable salary to a family member who runs it, and files a public return each year.
Common mistakes
- Self-dealing. Foundations cannot buy from, sell to or lend money to the founders and their family, with very limited exceptions.
- Falling short of the 5% payout, which triggers penalty taxes.
Key dates
- Each year
- About 5% of assets must be granted; Form 990-PF is due.
Questions we hear
Is there a minimum size for a foundation?
No legal minimum, but costs usually make sense only above a few million dollars.
Can I convert a donor-advised fund into a foundation?
No, but a donor-advised fund can make grants to many public charities, and a foundation can give to a donor-advised fund.
General education for TaxSquad clients, not advice for your situation. Rules and figures change. Talk to us before acting on this guide.