[Thrif-t]

Originally Posted by jIM_Ohio

The less you earn, the less the mortgage deduction helps you. The 70k income you make puts you in 15% tax bracket (because 7k to 401k puts income at 63k and 15% bracket caps at $66100 for married filing jointly).

You get 15% of your interest back. Not worth keeping a 6.8% mortgage (which is really [1-.15]*6.8%=5.78% after deduction).

If this is the reason you want to keep the mortgage, I would suggest spending some of the 30k to meet with an accountant and do some tax planning. If you earned higher than $66100 as taxable income, you would be in 25% tax bracket and then it might make sense to keep mortgage, but the 6.8% interest still makes me say PAY IT OFF. You mentioned todays market and I would be curious if you are earning 6.8% anywhere in 2008?

For better tax planning long term, try this:

1) make sure the retirement savings is 15% of gross income (70k). 10% to 401k and 5k to Roths is 7k+10k=17k. 17/70=24% savings rate. This goal (mentioned already) is being met without issue. Use the 401k to lower taxable income below $66100 so taxes paid are in 15% tax bracket.

Maintain 401k and Roth plans as you are doing now- this takes care of you, which is priority 1. Roth is being contributed right now in the 15% tax bracket and your withdraws might be in 25% tax bracket, saving you 10%. Excellent work.

2) pay down the mortgage with the 30k and redirect the current $375 from 529s to pay off the mortgage (should take less than 3 years).

3) Invest the current mortgage payment and $375 extra into the 529s for kids once the mortgage is paid off. Consider increasing 401k at this time as well (increase from 10% to something higher).

4) Once the 529s are funded (based on previous post by me) in 60 months (5 years), do the following tax planning:

a) when in 25% tax bracket, increase 401k contributions.
b) when in 15% tax bracket, increase contributions to taxable accounts
c) maintain an asset allocation during a) and b) keeping growth and dividend oriented investments in taxable accounts, and bond/cash type investments in tax deferred accounts.

**this is really a balancing act. If you identify $500/month which can be saved, then you want to direct a portion of the $500 to the 401k to reduce taxable income into 15% bracket, then invest the rest of the money in a taxable account. The end goal is to keep your marginal tax bracket at 15% if at all possible**

The 401k is a better tax savings on many many levels when compared to the mortgage interest deduction.

If you think the deduction is better for you, please list the following for 2007:

1) Gross Income 60,245 (this is from our w-2's right wages salary tips?)
2) Adjusted Gross Income 74,349 (had to claim 10k ira we cashed out won't happen again)
3) Taxable income 45,654
Total deductions 11,695
total refund/total owed

refund 2280
Thanks so much Jim I appreciate the help!!!