How would you handle my budget? | Personal Finance & Lifestyle | Yakezie Forums

Some details: my husband and I are both 26, and have a 3-year-old and a 1-year old. We have one debt, our mortgage, with a balance of like $131k (just got it in September). It's a 30-year, 4.5% deal.

But, we have an awesome tax credit, the Mortgage Credit Certificate, and we'll get a 20% tax credit on the amount of mortgage interest we pay each year. In 2012 it looks like we'll spend about $5k on mortgage interest, and we'll get about $11-1200 off our federal taxes for that.

The credit is good for the life of the loan.

We have a 6-month emergency fund, and are putting about 15% of our gross toward retirement. We are NOT maxing out both of our Roth IRAs (just one). We're putting 6% into his 401k and there's a 3% match, so about 18% gross going toward retirement.

We want to put money aside for our kids' college funds. Here in Indiana, we get a sweet 20% tax credit on our contributions to the state's 529 plan, so we put in $1,000, we get $200 off our state taxes.

My question for you is — how would you prioritize extra money? Should we try and max out our IRAs while we're young and let compound interest do its thing? (We have about $45k in retirement accounts right now).

Speed up the mortgage payoff?

Hit the 529s hard?

I think we can do a little bit of all 3, but how would you prioritize? 

I'd max out the retirement accounts, first, mortgage second, college accounts last.   

sensetosave said:

So contribute nothing at all to the mortgage or college accounts until we're doing $10k/year in the IRAs? Or do you also mean maxing out the 401k too?

I hate to leave money on the table in the form of the tax credit for the college accounts

If you've got it available, I'd max out all of the retirement accounts before either extra mortgage payments or the college fund.    Anything left, I'd split between the mortgage and the college fund, but probably a 70/30 split favoring the mortgage.

It sounds cold, but your kids will have their entire lives to cover their student loans.  It's hard to make up retirement fund contributions.

Also, even if you're not able to help until it's too late to prepay college, you could help with their loans after they have graduated.

I would increase the retirement contribution first, then 529.

If you have extra money left after that, then pay down mortgage.

In 10 years, the $700 mortgage payment will feel like nothing (inflation.)

I agree with the last two posters, retirement first, then 529. 

Looks like you guys have things pretty well together though, it's really great to only have one debt (mortgage) looking forward to hopefully getting there this year.

I think that a maxed out roth should be a priority as well – though you dont reveal your income situation, you could end up hitting the income cap for IRA's sometime in the future, making you unable to contribute to that account as well.  Also (dont quote me on this) but I think you can use Roths for "qualified education expenses" – not sure if that's just you, or your children as well.  

I'd go for the 529s next, then the home note.

Everyone else pretty much nailed it, but I just wanted to add that the Roth IRA is your opportunity now that will go away when your income reaches a certain maximum. So take advantage of it now!