A Registered Education Savings Plan is a tax-deferred 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 $4000 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 give you an additional 20% of your deposits on a portion of your RESP contributions - see information on the 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 An RESP terminates when all the funds have been withdrawn or 25 years after the plan was opened, whichever comes first.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 or growth 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 When money is eventually withdrawn from an RESP to pay for education-related costs, the income is taxed in the hands of the beneficiary (the student), not the contributor.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 growth and income may be transferred to the contributor's RRSP, as long as there is available contribution room. If there is more RESP income that RRSP contribution room, the excess income may be added to the taxable income of the contributor and, in addition to the tax that would normally be paid, a 20 per cent penalty tax would be charged.

It isn't often the Government of Canada gives away money. But that's exactly what the new Canada Education Savings Grant (CESG) is.

The federal government offers a grant of up to $400 to parents, grandparents, or great grandparents who invest in a registered education savings plan. You get an instant 20% regardless of the investment return.

The government pay the grant (maximum of 20%) on the first $2000 invested, which is $400. The $400 CESG is then added to the first $2000 investment making the RESP worth $2,400. Most Mutual Fund companies offer RESPs, offering you a vast array of investment choices.

Students attending any government approved University, Community College or private education facility, even if it is outside the country, can use the money from the savings plan.

The government has become quite flexible on how this money can be used. Most people think only of tuition. But the money can pay for school-related housing, room and board, books, and other education expenses.

The Grant is offered on a calendar year basis, so don't let December end without starting or topping up your plan.