Reducing the AMT

A client, Sarah, is a 35-year-old single mother with two young children. She has a stable job with an annual salary of $80,000 and has accumulated $50,000 in a 401(k) plan. She also has $10,000 in an emergency savings account. Sarah expresses concern about saving for her children’s college education while ensuring she has enough for her retirement. She is considering taking a loan from her 401(k) to start a 529 college savings plan for her children.

As her CFP® professional, how should you advise Sarah to prioritize her financial goals?

1. Encourage Sarah to take the 401(k) loan to fund her children's 529 plans, as college costs are expected to rise significantly.
2. Advise Sarah to keep her retirement savings intact and consider funding the 529 plan after she has increased her emergency savings and maximized her retirement contributions.
3. Suggest that Sarah stop contributing to her 401(k) temporarily to redirect funds toward her children's education savings.
4. Recommend Sarah use her emergency fund to begin contributing to a 529 plan, as the long-term growth in the account will benefit her children more than holding cash