If your state has an income tax deduction for 529 accounts, I'd contribute without hesitation as much as will earn the deduction before investing in a regular investment account -- most states limit this to $5,000 per wage earner per year or something, so you almost certainly won't be left with a 529 account that is too big relative to the amounts you would like to give your daughters for school, even if you swing a good financial aid package. If there is no tax deduction, I'd contemplate a few grand a year anyway, but only once you're absolutely maxed out all your other tax advantaged accounts. I'm pretty sure 529s these days are counted in the financial aid formula just the same as any other parent taxable account when determining ability to pay, so it shouldn't harm you there (but worth researching further if you have some idea of what schools your daughters are interested in). At one point in the past they were counted as student property, which the formula assumes you'll spend on education at a much faster rate -- increases the family's expected yearly contribution.
A 529 account set up with the parent as the owner and the oldest child as the beneficiary can be rolled to benefit the younger child if it is not used up when the older child is in college, so I would just open one account and treat is as a common pool. The parent as owner controls the account so your oldest daughter cannot withdraw cash on her own in excess of what you personally take out of the account for her tuition.
Regarding Roth IRAs, you have until close of business on Monday to make contributions in the name of tax year 2017, so get that done ASAP. Yes, one account in your name and one account in your wife's name, even though she does not work right now. Contribution limits are determined based on family income, but each account is titled in the name of one spouse. So $22,000 goes to Vanguard on Monday, $5,500 per person per tax year. You'll probably have to log into each account separately and order $11,000 transfers for each. There should be check-boxes on the on-line forms to make sure they credit the correct tax years.
Regarding the Fidelity 401k, I personally wouldn't roll it into an IRA unless the custodian is saying you must. Sometimes, if the balance is not above a certain threshold, the 401k custodian will kick out an account of someone who has left the employer -- but at $65,000 she should be well above Fidelity's usual threshold of $25,000 so I doubt this is happening. Check her investment options; Fidelity usually has some good low-cost index funds in their 401k plans (the "Spartan" funds), so if that's the case just make sure she's invested in those and leave it alone. Part of the issue is an IRA containing rollover 401k funds can block a Backdoor Roth strategy (if you ever need to execute one of those), another part is that 401k plans have better creditor protections in case you get sued or go bankrupt or something, relative to IRAs (which are protected, but not as well as 401ks). Both of these points are probably unlikely in your case, but if your 401k fees are decent then it's worth keeping the money there to keep these benefits. But note, if you do choose to roll over, it does not count against your contribution limits for the current year.
Regarding cash on hand and emergency funds -- you have $80,000 on hand, which is probably way more than enough. Even $40,000 is probably too much given your spending rate, by most people's definitions, but I won't argue with what helps you sleep at night. Let's say that $22,000 of that $40,000 goes into Roth IRAs tomorrow. The rest you should invest elsewhere. Perhaps $5,000 also goes into a 529 account if you get a tax break -- actually, perhaps $10,000 if you can get a 2017 tax break by contributing by close of business Monday. The remainder (after contributions to 529s, if any) can go in a standard taxable account.
Regarding asset allocation and positioning: There is a real personal element here, having to do with risk tolerance and ability to sleep at night. Most people around here are quite aggressive in their investment portfolios, because they need to grow and last a long time. This is offset by keeping about a year's worth of spending money in cash to avoid having to sell into a market crash, and really tight discipline over spending, especially fixed recurring obligations. But if seeing your portfolio zig and zag gives you heartburn, you might lean towards 60% stocks and 40% bonds. This would be considered fairly conservative around here, and the type of portfolio allocation on which the Trinity Study was based -- the one which found the 4% "Safe Withdrawal Rate" (look it up). Less stock than that and you run into the risk that the long-term growth of the portfolio undershoots your needs. As between tax protected and taxable accounts, people who really geek out on this stuff have suggested that bonds go in taxable, and use a tax free muni fund instead of a corporate bond fund if your tax rate is high enough to have the tax treatment of corporate bond interest annoy you.
