NEPC’s Kristi Hanson and Colin Hatton share their perspective in this Pensions & Investments byline on how recent legislation is reshaping the tax landscape for university endowments — and the proactive strategies institutions can consider in response. Visit P&I’s website to read the full article.
“For generations, colleges and universities in the United States have enjoyed broad tax-exempt status for their endowments — allowing them to reinvest income and capital gains back into their missions with minimal tax drag. But that traditional framework is beginning to shift.”
. . .
“Historically, investment income and capital gains generated by endowments — through stocks, bonds, private investments, and more — have been exempt from federal taxation. The TCJA changed that for a select group of institutions, introducing a 1.4% excise tax on net investment income for private colleges and universities with at least 500 full-time equivalent (FTE) tuition-paying students and endowment assets exceeding $500,000 per student.”
. . .
“With the new tax law, endowments enter a new era of financial planning as taxable investors. Fortunately, tax strategies that have long been in use in the private wealth space can be adapted to help endowments manage their tax exposure.”
. . .
“Institutions can also manage their tax exposure by making organizational changes with the new tax rules in mind. While the options to do so are numerous, three specific tactics are worth immediate consideration.”
. . .
“With the passing of the bill, the message from policymakers is unmistakable: University endowments are no longer immune from tax scrutiny and the institutions affected must act accordingly. We advise these higher educational institutions to work closely with advisers who are equipped to provide proactive, tax-informed guidance.”
Click here to continue reading the full Pensions & Investments article.