What Is a Pooled Income Fund? How It Works and Tax Benefits

A pooled income fund is a charitable trust that lets you make an irrevocable gift to a public charity, receive income for life from the donated assets, and pass what remains to that charity when the last income beneficiary dies. Your contribution is combined with gifts from other donors into a single investment pool that the charity manages. Each year, the fund distributes its actual net earnings to beneficiaries in proportion to their share of the pool.

How a Pooled Income Fund Works

You transfer cash or securities to a fund maintained by a public charity. The charity commingles your property with property from other donors who made similar transfers and manages the combined pool as a single investment portfolio.¹ Once transferred, the gift is irrevocable. You cannot take the property back.

The charity itself maintains the fund. Federal law bars donors and income beneficiaries from serving as trustees, so the charity acts as trustee directly or appoints a bank or other independent party. A single charity can run more than one pooled income fund, but no fund can be structured to let a group of donors control investment decisions.²

When you make your contribution, you name one or more income beneficiaries. All of them must be alive at the time of the gift. You can name yourself, yourself and a spouse, or another individual; some funds also allow a successor beneficiary. Each beneficiary receives payments for life. When the last beneficiary dies, the trustee severs your share from the pool and the charity receives those assets outright for its charitable mission.¹

Charities differ in how they handle administrative and investment management costs. Some absorb them; others charge fees against the fund’s income, which reduces what beneficiaries receive. Ask about the fee structure before you contribute.

What You Can Contribute

Most donors give cash or publicly traded securities. Appreciated stock is a common choice because the fund can sell it without triggering capital gains tax at the fund level, so the full sale proceeds stay in the pool generating income.¹

The fund cannot invest in securities whose income is exempt from federal tax, such as municipal bonds. The fund’s governing document must expressly prohibit both purchasing and accepting tax-exempt securities.²

Real estate and closely held business interests are difficult to contribute because illiquid property does not blend cleanly into a shared investment pool. S-corporation stock cannot go in at all: a pooled income fund is not an eligible S-corporation shareholder. In practice, most funds accept only cash and marketable securities.

If you contribute non-cash property valued above $5,000, you must obtain a qualified appraisal and file Form 8283 with your return. You need the appraisal in hand before the due date, including extensions, of the return on which you first claim the deduction.³⁴

How Income Payments Work

Payments from a pooled income fund are variable, not fixed. Each year the fund calculates its net income — mostly interest and dividends — and distributes it to beneficiaries in proportion to each person’s units in the pool. When the fund earns more, your payments rise; when it earns less, they fall. That is the main structural difference from a charitable gift annuity or a charitable remainder annuity trust, which both pay a set dollar amount regardless of how the underlying investments perform.

Payments are ordinary income to you, taxable on your personal return in the year received, whether the fund earned the money as interest or dividends. Capital gains realized inside the fund do not flow through to beneficiaries; the fund handles those separately.

The Charitable Income Tax Deduction

Contributing to a pooled income fund entitles you to a federal income tax charitable deduction equal to the present value of the remainder interest — the portion of your gift the charity is expected to receive after income payments end.¹

Three factors set the size of the deduction: the fair market value of what you contribute, the ages of the named income beneficiaries, and the fund’s highest annual rate of return during the three tax years before the year of your gift. A younger beneficiary means a longer expected payout, which shrinks the remainder interest and lowers your deduction. A higher historical return does the same, because more of the fund’s value is assumed to reach beneficiaries as income.¹

If the fund is less than three tax years old, the IRS prescribes a deemed rate of return instead. For transfers made during 2026, that rate is 4.0 percent.⁵

What Happens to Capital Gains Inside the Fund

Transferring appreciated property to the fund is not a taxable event for you. The fund takes over your cost basis and holding period, so the built-in gain moves with the property rather than triggering tax on your personal return.

When the fund later sells long-term appreciated assets — held more than one year — it can deduct those gains if the fund’s governing document permanently sets them aside for the charity. That deduction effectively eliminates capital gains tax on the sale, allowing the full proceeds to be reinvested for income.¹ Short-term gains, from assets held one year or less, do not qualify.

Estate and Gift Tax Effects

Because your gift is irrevocable, the contributed assets leave your taxable estate. The remainder interest qualifies for the federal estate tax charitable deduction under the same provision that covers charitable remainder trusts.⁶

If you name someone other than yourself as an income beneficiary, you are making a gift of that income interest to them. The remainder interest going to the charity qualifies for the federal gift tax charitable deduction and offsets the charitable portion of the transfer.⁷ The income interest itself may still be subject to gift tax to the extent it exceeds the annual gift tax exclusion, so talk to a tax advisor before naming a non-spouse beneficiary.

Pooled Income Fund vs. Charitable Remainder Trust

Both arrangements let you make a lifetime charitable gift while receiving income, and both take the property out of your estate. They differ in several ways that matter when choosing between them.

Investment control. With a pooled income fund, the charity makes all investment decisions. With a charitable remainder trust, you pick the trustee and can influence strategy.
Payment structure. A pooled income fund pays a variable amount tied to actual earnings. A charitable remainder annuity trust pays a fixed dollar amount; a charitable remainder unitrust pays a fixed percentage of the trust’s annually revalued assets.
Setup. A pooled income fund needs no separate trust document; you contribute to the charity’s existing fund. A charitable remainder trust requires a drafted trust agreement, usually an attorney, and typically a larger minimum gift.
The 10 percent remainder rule. A charitable remainder trust must be structured so the present value of the charity’s remainder equals at least 10 percent of the initial contribution. Pooled income funds have no such requirement, which can make them workable in low-interest-rate environments where remainder values are compressed.
Income character. A pooled income fund distributes the fund’s actual net income, mostly interest and dividends. A charitable remainder unitrust can distribute capital gains and other income types depending on how it is structured.

For donors who want to support a specific charity without setting up a standalone trust, a pooled income fund is usually the simpler, lower-cost path. A charitable remainder trust offers more flexibility and control in exchange for more planning and expense.

When the Last Beneficiary Dies

Once the last named income beneficiary dies, the trustee calculates the units tied to your original contribution and severs that share from the investment pool.⁸ Those assets become the property of the public charity that maintained the fund, to be used for its charitable mission. The remainder cannot be redirected to a different organization, extended for another beneficiary, or returned to your estate.¹

1
Office of the Law Revision Counsel. 26 USC 642 – Special Rules for Credits and Deductions
2
GovInfo. 26 CFR 1.642(c)-5 – Definition of Pooled Income Fund
3
Internal Revenue Service. Publication 561 – Determining the Value of Donated Property
4
Internal Revenue Service. Instructions for Form 8283
5
Internal Revenue Service. Revenue Ruling 2026-2 – Section 1274 Determination of Issue Price
6
Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses
7
Office of the Law Revision Counsel. 26 USC 2522 – Charitable and Similar Gifts
8
Internal Revenue Service. Instructions for Form 5227