RESPs

A Registered Education Savings Plan lets you contribute funds that grow tax-free until your child goes to any eligible post-secondary school full-time.

When your child starts going to college and withdrawing money, the funds are taxable, but students typically have a low tax rate.

And if your child elects not to attend a post-secondary school, you may transfer up to $50,000 in interest earned in the RESP to your RRSP, depending on whether the specific RESP offers that feature.

You may contribute of maximum of $4,000 per year or a lifetime maximum of $42,000 per child.

Your contributions aren't tax deductible, but the federal government does contribute an additional 20% on the first $2,000 of your annual contributions as part of the Canada Education Savings Grant (CESG) if your annual household net income tops $70,000. These contributions don't count towards your maximum contribution limits.

The federal government doubles the CESG from 20% to 40% on the first $500 of RESP contributions each year if your householdís net income is $35,000 or less. And it offers of 30% contribution on the first $500 of annual RESP contributions if your household's annual net income is higher than $35,000 or less than $70,000.

Alberta offers an additional contribution through the Alberta Education Savings Plan. The province contributes $500 to the RESP of every child born to Alberta residents since January 1, 2005. Starting in 2013 Alberta will give subsequent $100 grants to children at ages 8, 11 and 14, beginning with children born in 2005.

Like RRSPs, RESPs can be self-directed, or you can structure a RESP as a scholarship plan.