As the cost of education in Australia continues to rise, more families are searching for effective ways to secure their children’s academic future. In 2025, Education IRAs—also known as Education Savings Accounts—are drawing attention as a potential solution for building dedicated school and university funds. But how do these accounts work in the Australian context, and what new opportunities or restrictions should parents be aware of this year?
What is an Education IRA and How Does it Work in Australia?
While the term “Education IRA” originates from the United States, where it refers to tax-advantaged accounts for education savings, a similar concept is emerging in Australia. Here, families are increasingly using investment accounts, such as education-specific managed funds or scholarship plans, to earmark money for future education expenses. In 2025, several Australian banks and investment providers have rolled out products inspired by the Education IRA model, offering flexible contribution options and tax-effective growth.
- Tax efficiency: These accounts often allow investments to grow with concessional tax rates, especially if the funds are used for eligible education expenses.
- Government support: While Australia does not have a direct equivalent to the US Education IRA, the federal government’s Education Entry Payment and other grants can be used alongside private savings plans.
- Investment choices: Parents can select from conservative cash options to growth-focused managed funds, tailoring risk to their timeline and goals.
For example, Australian Unity’s Education Savings Fund and AMP’s Education Bond both allow regular contributions, with returns taxed at up to 30%—often less than most parents’ marginal tax rates.
2025 Policy Updates Impacting Education Savings
Several legislative changes and market trends are influencing how Australians save for education in 2025:
- Indexation of education costs: The ABS has reported a 5.1% increase in private school fees nationwide for 2025, intensifying the need for advanced planning.
- Tax treatment clarity: The ATO clarified that investment earnings within education-specific bonds remain concessionally taxed if withdrawn for eligible schooling or university expenses.
- Digital account management: Most major providers have launched real-time digital platforms, allowing parents to track balances, adjust contributions, and allocate between investment options on the go.
Additionally, the federal government is reviewing proposals to allow superannuation-linked education drawdowns—while not yet legislated, this could reshape long-term strategies.
Strategies for Growing and Using Your Education IRA
Building a substantial education fund requires both smart product choice and disciplined saving habits. Here’s how families are getting ahead in 2025:
- Start early: Even modest contributions made from birth can compound significantly by high school or university age. A $2,000 annual contribution at 5% average return could grow to over $30,000 in 10 years.
- Automate contributions: Setting up direct debits, especially into managed education funds, removes the temptation to skip saving months.
- Reinvest earnings: Choose funds that automatically reinvest interest and dividends, boosting compounding over time.
- Review annually: As your child’s needs and your own financial situation change, adjust contributions or investment risk accordingly.
- Coordinate with government support: Layer private savings with eligible government payments or scholarships for maximum effect.
Real-world example: The Nguyen family in Sydney started an education bond for their two children in 2015. By 2025, regular contributions and reinvested returns have created a $70,000 pool—enough to cover a decade’s worth of high school and university fees.
Is an Education IRA Right for Your Family?
Education IRAs and similar savings vehicles aren’t just for the wealthy. With school and tertiary costs projected to outpace inflation through the decade, these accounts offer a disciplined, tax-efficient way for Australian families to build a brighter academic future for their kids. The key is starting early, choosing the right product, and taking advantage of both market growth and government support.
