A Registered Education Savings Plan is essentially a tax-deferral savings plan that you open on behalf of a future post-secondary student. While RESP contributions are not tax deductible, the income earned on contributions compounds on a tax-deferred basis. You may contribute up to $4,000 per year per beneficiary and RESP contributions may be made for up to 21 years — to a lifetime maximum of $42,000 per beneficiary. (Plus, the federal government will pay you an incentive on a portion of your RESP contributions — see Canada Education Savings Grant below.) An RESP terminates when all the funds have been withdrawn or 25 years after the plan was opened, whichever comes first.

You may withdraw your RESP contributions at any time, with no tax consequences — only the accumulated income in the plan is taxable. When money is eventually withdrawn from an RESP to pay for education-related costs, the income is taxed in the hands of the beneficiary (the student), not the contributor. If the student withdraws the money over a few years, the income should attract little or no tax.

Subject to certain conditions, if the beneficiary does not pursue post-secondary studies, up to $50,000 of RESP inc

Registered Retirement Savings Plan (RRSP)

 The full CESG must be returned to the government.

 Parents, grandparents, aunts, uncles or friends may be permitted to contribute to the child's education (depending on the type of plan).

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