New legislation introduces a tiered excise tax structure for endowments. Here’s what institutions need to know—and how tax-aware investing can help.
by Rob Wilson
Key Takeaways
- A new tiered tax structure will apply to college and university endowments starting in 2026, with rates as high as 8% for the largest endowments.
- Now is the time to consider cost basis and define liquidity needs—tactical tax planning in 2025 can mitigate future liabilities.
- Tax-aware investment strategies are more important than ever for aligning long-term financial goals with evolving tax policy.
As of July 4, 2025, newly enacted legislation will reshape the tax landscape for college and university endowments. Institutions with student-adjusted endowment sizes exceeding $750,000 will face a significantly higher excise tax rate beginning in the 2026 tax year. Those above $2 million per student could see taxes jump to 8%.
While private foundation tax rates were ultimately left unchanged, the implications for higher education institutions are substantial.
That’s why now—before year-end—is a critical window for financial stewards to assess how these changes may impact their portfolios. From resetting cost basis at the current 1.4% rate to managing liquidity and adopting a tax-aware strategy, there are proactive steps endowments can take to reduce exposure and remain aligned with their values.
Ethic offers tools and strategies specifically built for institutional investors navigating this shift, including tax-efficient rebalancing, automated loss harvesting, and detailed tax reporting.
👉 Download the full explainer to learn what the new law means for your institution—and how Ethic can help.
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Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.