Yes, if you live in the United States. In Canada we have a similar, although not quite identical, plan called the Registered Education Savings Plan (RESP). RESP is a tax-preferred savings plan offered by the Canadian Government to encourage parents and grandparents to save money for post-secondary education for their children and grandchildren. Here is how it works in a nutshell.

An RESP can be set up for any child under the age of 21 and must be wound up by the end of year 25 after the date it was set up. As of 2007, there is no limit on annual contributions, but there is a total aggregate limit of $50,000 on all contributions, which means that you can either contribute smaller amounts every year over a certain period, or make a lump sum contribution of $50,000 in the first year and maximize tax deferral.

The contributions are not tax deductible, but any investments earnings are tax sheltered. When income is paid out of the plan, it typically goes to a student who has no or very little other income. This means that this income will be taxed at a very low rate, which increases the overall tax efficiency of the plan. The funds can be used for any education related expenses, such as tuition, fees, books, computers and even living expenses. The only requirement is to be enrolled in an accredited post-secondary institution for a specified minimum period of time.

But the most attractive part of RESP is not the plan itself, but one particular addition to this plan called the Canada Education Savings Grant (CESG). This grant provides 20% matching contributions to your plan from the Federal government up to the maximum of $500 per year. This means that if you contribute $2,500 per year, the Government will contribute $500 on top of your contribution to the total of $3,000. The total lifetime maximum for CESG if $7,200.

If you change your mind at any time and decide that you don’t like your children anymore, you can always withdraw all your contributions tax free. You will only pay tax on the investment earnings at whatever your marginal tax rate is at the moment in addition to the 20% penalty tax. This plan gives all of us an excellent opportunity by making saving for our children’s education affordable almost for anybody. Most of us can set aside $200 a month, so why not take advantage of it? You can set up an RESP at your local bank of with your financial advisor.

Nikolay Sisan is a Certified Financial Planner and freelance writer in Vancouver.