Biggest foundations barely donate enough to charity

The largest private foundations are just barely exceeding the 5% statutory threshold for charitable donations, according to a new report.

The report, released Tuesday by the Charity Reform Initiative of the Institute for Policy Studies, found the average payout at major grantmaking institutions — the 144 private foundations with endowments over $1 billion — was 5.1%  in 2024, just slightly above the legal payout requirement of donating 5% of annual assets, indicating that the largest institutional funders are treating the 5% level as a ceiling instead of a floor. 

"Foundations can get away with underpayment due to inadequate enforcement and clever accounting," said the report.

Under Section 4942 of the Internal Revenue Code, private non-operating foundations are required to make annual qualifying distributions equal to at least 5% of the fair market value of their non-charitable use (investment) assets to avoid heavy excise taxes.

The largest private foundation, the Lilly Endowment, reached a 5% payout in 2025 for the first time since 2009. The endowment was the first to reach a $100 billion valuation, according to Bloomberg News, thanks to a surge last November in the stock of its parent Eli Lilly & Co. to a $1 trillion market valuation. Prior to that, the foundation's payout was only 3% in 2024 and 3.4% in 2023. The assets have more than doubled in value since 2022 due to the popularity and proliferation of GLP-1 drugs such as Zepbound and Mounjaro. (The Lilly Endowment did not immediately respond to a request for comment.)

Meanwhile, foundations are earning far more than 5% on their investments than they're paying out to charities. Aggregate foundation market returns are estimated by FoundationMark to be 12% over 2024, and 7.2% over the past five years.

The report estimates that if the 121 billion-dollar-plus private foundations that paid out less than 10% were required to pay out at 10% in 2024, they would have donated an additional $23.4 billion to charity.

"Even turning the dial modestly to require higher payouts from our philanthropic system could unleash hundreds of billions of dollars for our common good," said Bella DeVaan, co-author of the report and director of the Charity Reform Initiative of the Institute for Policy Studies, in a statement. "We hope our report inspires grantmakers to evaluate themselves frankly, and to aggressively and immediately engage in solidarity through their giving."

The researchers estimated that donor-advised funds and foundations make up 38% of all individual giving in the U.S., and if they continue to grow at their current rate, they will take in half of all individual giving. The assets in DAFs and foundations have surpassed $2 trillion this year.

Wealthy donors poured record amounts into DAFs before certain provisions of the One Big Beautiful Bill Act took effect that might limit the value of their tax deductions, the report noted. The gifts were "bunched" to maximize tax benefits upfront, so DAFs may take more years to ultimately disburse the grants to charities.

The researchers estimate that in the charitable giving sector, up to 73 cents of each dollar donated by very wealthy individuals is subsidized by taxpayers, equating it to the total subsidy wealthy donors can derive from tax avoidance through charitable donations. 

The report argues that raising the legal private foundation payout requirement would unleash an estimated $66.3 billion in stagnated philanthropic wealth to working charities in 2026. Using 2024 projections, that could unleash a total of $351 billion through 2029.