|Can I open a 529 plan with a lump sum?|
Yes, although you will want to consider both the plan's terms and the gift tax rules. Every plan has a lifetime contribution limit--in the majority of states, this limit is at least $300,000. Unlike Coverdell education savings accounts,, your annual income does not limit your contributions. So, it doesn't matter how much money you earn in a particular year--you can still contribute to a 529 plan.
As a donor to a 529 account, you can contribute up to $13,000 per year, per beneficiary with no gift tax problems. If you are married, your spouse can also contribute up to $13,000. So, the two of you could use $26,000 to start a 529 account for your child without any gift tax concerns.
Although $13,000 per year is the limit for tax-free gifts, you can actually "front load" a 529 account by putting in $65,000 per beneficiary (and your spouse can do the same) and still avoid any gift tax problems. In effect, you're making five $13,000 contributions all at once. So, you can't make any more $13,000 contributions over the next five years for that same beneficiary without owing a gift tax. But in effect, two parents (or grandparents) could fund an account for one child with $130,000 all at once.
Any amounts contributed in excess of $13,000 per year (after any "front loading" as previously described) count toward an individual's lifetime gift tax exclusion amount, which is $1 million. Once you exceed the $1 million amount, gift taxes must be paid. And any time you exceed the $13,000 amount in a year, you must file IRS Form 709 (the federal gift tax return) at the same time as your income tax return. Remember that other gifts you make in the same year that you contribute to a 529 plan must be counted in the $13,000 per year limit and the $1 million lifetime exclusion amount.
By the way, 529 accounts must be funded with cash only. So, if your lump sum is coming from a potential sale of appreciated securities (e.g., stocks), it may not make sense to sell the securities and pay capital gains taxes. Consult your tax advisor before you make a decision.
Also, if you're in a state that allows a state tax deduction for 529 plan contributions, you may want to avoid a lump-sum contribution and make annual contributions instead. This approach lets you qualify for the state tax break in future years.