So you're leaving the hospital, new addition to the family in tow and your thoughts are focused on how your life is about to change forever. No more lazy mornings savouring relaxed cups of java. No more darting out for a night on the town on a moment's notice.

And no more disposable income.

Diapers, day care and summer camps. Organized sports, music lessons and school trips. Driving lessons! Soaring insurance bills!

And — ohmygawd! — tuition fees. Your little genius is definitely destined for a doctorate. What's that going to cost?

The class of 2012 — the kids entering first year university in September 2008 — can expect to pay an average of almost $5,000 a year just for tuition. Living in residence or a shared apartment could easily add another $6,000 or so over the school year. Throwing in incidentals — like books, transportation and the odd trip to the pub — can easily add another couple of grand to the yearly tab.

Multiply that by a four-year program and you're looking at a tab of better than $50,000.

What will it run your little bundle of joy 18 years down the road?

If costs rose a modest three per cent a year, you'd be looking at a bill of better than $85,000. Throw in some post-graduate study and you're easily into six figures.

Tax-free growth

For most Canadians, the simplest way to set aside money for a child's education is a Registered Education Savings Plan. You put cash into it. It grows tax-free until your child needs the money. Your child pays the tax on the money withdrawn — if there's any tax to pay.

RESPs are similar to Registered Retirement Savings Plans in that they allow money to grow tax-free. The major difference is that you do not get a tax credit when you deposit money into the account — although a private member's bill tried to change that in March 2008.

Bill C-253, which was sponsored by the opposition Liberals and approved in the Commons, would have let parents get up-front tax deductions for their contributions, up to $5,000 a year for each child. But a government motion later killed it before it became law.

These plans have been around for years. But they really only started to attract widespread attention in the past decade, as the cost of post-secondary education soared and the federal government made the programs more attractive.

You can contribute up to $50,000 per child over the life of a plan and there is no longer an annual limit. The 2008 federal budget allows RESPs to stay open for 35 years rather than 25 years. Contributions can continue for 31 years after the plan was set up.

The government will provide Canada Education Savings Grants worth 20 per cent of the first $2,500 contributed each year to an RESP, up to $500 a year. Under the CESG program, the federal government will kick in a maximum of $7,200 to your child's RESP over the life of the plan. For families with total incomes below $74,157 in 2007, a sweetened grant is given on the first $500 of annual RESP contributions.

There's also a Canada Learning Bond available for the RESPs of children born after Jan. 1, 2004 and who are from families that get the National Child Benefit Supplement. That can add an extra $500 to an RESP in the first year and $100 in each of the next 15 years for a total grant of $2,000.

This program does allow for carry-forwards. Unused grant room one year can be used up the next year — or in subsequent years. The grants are not available for adult beneficiaries of RESPs.

Rules while you wait

In the unlikely event your little genius does not go on to an approved post-secondary institution, any money the government added to the RESP will have to be paid back. But income generated from that money remains within the plan.

There are also rules about what happens to the money that grew tax-free while you waited for the halls of academia to welcome your progeny. You can transfer up to $50,000 to your RRSP — or your spouse's — if you have the contribution room.

Anything above that can be withdrawn, but it will be treated as income and will be taxed. The money can go to the beneficiary if s/he is at least 21 and a resident of Canada — and the plan has been in existence for at least 10 years.

Most plans used to be available only through group providers, such as non-profit scholarship trust companies. But that could be a bit of a gamble — if your child opted for work instead of study, you would only get back the money you put into the plan. The tax-free growth would stay in the pool to fund the scholarships paid to plan members who went on to college or university.

There are currently three types of RESPs: family, group plan and individual plans.

Family plan

• You can name one or more children as beneficiaries.
• They must be related to you either through birth or adoption.
• Any or all of the children named in the plan can use the money.
• You — or a financial adviser — decide how to invest the money.
• Wide range of investment options.

Individual plan

• There is one beneficiary who does not have to be related to you.
• The beneficiary can be an adult, including yourself.
• You — or a financial adviser — decide how to invest the money.
• Wide range of investment options.

Group plan

• Administered by a group plan dealer (similar to group RRSPs).
• Investments normally limited to fixed-income securities, such as GICs, T-bills and bonds.
• You are often required to sign a contract committing to regular contributions.
• Savings are pooled and amount of money each pool member receives depends on how much money is in that pool.
• You can name only one child as beneficiary.
• If the beneficiary does not go on to post-secondary education, you will get back only what you put into the plan.

So how do you amass that small fortune you'll need to pay the bills? It may not be as painful as it sounds.

If you wanted to set aside $85,000 so your child would not have to divert his/her attention from academic pursuits to flip burgers part-time, you would need to save slightly less than $2,200 a year for 18 years if your plan returned six per cent. Ottawa would add another $400 a year.

Not quite $200 a month. Well, maybe $100 a month if you set aside the $100 a month the federal government began offering in July 2006 to help offset the costs of raising a child under the age of six.

But before you open that RESP, make sure you apply for a social insurance number for your child. The government won't hand over any grant money without it.

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