How to best allocate savings

[noppenbd]

I agree with everything except dropping the Roth. People should plan for 15%+ contributions to retirement accounts, especially early in their lives where contributions will compound the most.

I said reduce, not drop the Roth.

They currently put 10-12% (call it 11%) of gross into 401ks. They need another 4% for 15% total. 4% of 120K is ~$5K, so they could cut the Roth contributions in half and still be at 15%. I would rather see this done than go into debt for the surrogacy. If delaying the surrogacy is an option or can be fully funded without cutting the Roth contributions, then by all means keep maxing that Roth.

[TBH]

I agree with noppenbd, except I think you should keep your Roth contributions at their current levels.

First finish funding your EF. Then put all extra cash into a short-term savings account to fund the surrogacy. When you have your baby, you can use any extra $$ in that account to pay down the mortgage. I don't think $400 per month is enough to save for the surrogacy if you want to do it in only 2 years. You'd have less than $10,000 saved at that rate (24 months times $400 per month=$9600).

[sandrark]

You've got car leases, and no plan to save for replacements that I can see.

I like noppenbd's plan - get the EF up to $30K and cap it. Move it somewhere like ING, so you can't nickle-and-dime it.

Then start a car replacement fund. $1600 per month - you should have enough to buy gently used cars as replacements for the leases within 18 months.

Then start on the IVF fund. You can have that funded in another 18 months.

I wouldn't be throwing additional money at the mortgage, on a declining asset, when you KNOW you'll need cash for IVF, cars and EF.

You can pay a lump sum against the mortgage once you've bought the used cars and paid for the IVF.

Sandi

[MonkeyMama]

Noppenbd's plan is wise. We had one year's expenses in the bank when we had kids, no problems (but dh could never find a job when we felt we needed more income). I'd say it was barely enough, and that's without getting into IVF and complications. I would save save save for the unknown. & if all goes better than expected, you have a chunk to put towards the mortgage, later. Paying off the mortgage too quickly can compromise your liquidity. HAving a "future mortgage payoff" fund is wise until you see where you are with children, etc., down the road.

I would balance that cash savings with taking advantage of tax deferred retirement savings. You could each put $16500 into your 401ks (depending on employer limits anyway). The more you put in your 401ks the more you save in income taxes. Not that you need to max out, but you may want to look at the tax ramifications. Maybe contribute to the level that your taxable income is below the 25% tax brackets, etc.

On the ROTHS, I would consider maxing them out but investing very conservatively (maybe even cash). You can pull out ROTH principal in the future, tax and penalty free, if you ever need it. But you will never get another opportunity to max out a ROTH for 2008 and 2009. Again, down the road you can decide to invest it more aggressively if you don't feel you will need to pull it back out in the interim. But this is an excellent way to kill 2 birds with one stone. I am all for putting WAY more into retirement than you really need to, if it gives you substantial tax savings.

I think your original plan is overall sound. Just, you may be able to save some more money with a little tax planning, is all.

[ukey]

Its a good plan, with short term and mid term savings and plan in place. Only thing is about your emergency funds. There will come a point when you have sufficient funds in your emergency account. Good to plan how to save the rest for long term savings/ other savings as well