[jIM_Ohio]

If you put this 30k towards retirement- would it be tax deferred, tax free, or taxable.

Tax deferred- you would need to open a deductable IRA or increase 401ks to point where max was going to 401k, then you would spend this money to replace lost income from 401k contributions.

Tax free- put 5k in Roth IRA for you and spouse for 2008. Do again for 2009, do again for 2010.

Taxable- invest all 30k into a taxable account now.

If you do the taxable account there is nothing **requiring** you to spend the money on retirement.

Is the money for kids 529 growing at higher than 6%? If it;s close I would change the financial plan. Here are the options which I am thinking about:

1) Make sure 15% of gross income is being applied to retirement funding. Fund long term financial goals first (fund the long term goals now before they become a mid term goal).

2) Make sure the plan for house payoff and kids education is sound. Both are mid term goals (house paid off in 9 years, first kid going to college in 6 years). You are using $375/month to invest for college and pay down mortgage. What if this money was all put to same purpose and then you worked backwards?

a) Use 30k to pay off mortgage (29k balance left)
b) send all $375 to mortgage each month (this payoff would be less than 6 years- probably 2.5 years based on my calculation)
c) then you have $375+765=$1140/month to allocate to kids education in 2 years.

Here is my logic:
kid 1 gets 72 months of $121=$8712 in current plan
kid 1 gets $1140 for 10 months= $11400 in new plan

kid 2 gets 96 months of $108=$10368 in current plan
kid 2 gets $1140 for 10 months=$11400 in new plan

kid 3 gets 132 months of $96=$12672 in current plan
kid 3 gets $1140 for 10 months= $11400 in new plan.

In 2.5 years (30 months) mortgage is paid off. In 30 more months the full college contributions for all kids have been made (you made equal contributions in new plan for all 3 kids). Kids 2 and 3 missed out on some compounding over next 40 months, so they get a higher contribution.

In 5 years (60 months) you and your wife get the $1140 into your budget to pay off HELOC, boost retirement savings and savings in general.

If the 2.5 years without college contributions is going to "eat" at you, tell each kid you will pay the last half of their college tuition (meaning junior and senior years) and you then get the additional 2 years of compounding you lost otherwise.

Why I think this plan makes sense: the size of the contributions is small when compared to cost of mortgage and extra payment to mortgage. You have a broad approach with current plan, where as if you concentrate on one goal, you could accomplish more and probably sooner. The 6.8% mortgage rate is also high enough that paying down the debt is as good a return as you could find. This also takes away some "liquid" assets from financial aid calculators (I assume the calculations look at home equity and brokerage accounts differently, but I do not know this for sure).

If I had to look at this another way, consider putting 10k into each college fund, then allocate the $375/month to pay down mortgage. This will take longer but gives college funds more time to compound.

I do not think 2 years of compounding is an issue (if you miss 2 years of contributions/compounding). One reason for this is missing 24 months of a $121 contribution is $2904, which might be $290 of interest if you picked investments REALLY well. The $1140 plan helps on top side by getting the max contribution in earlier (all kids will have money in accounts with a year or two or 5 to spare and get compounding on that. 10% of $11400 is $1140, so kid 3 especially benefits from this plan, and kid 2 will as well. You could probably add an extra contribution for kid 1 if you felt like this short changed him.