How's my plan sound to you?

[Mom to 5]

Here is where I am using the funds.  If you think I should prioritize differently, please let me know.

Current salary: 84,000/yr (single income family)
Monthly take home: $5470

Assets:
House- ~$279K (says Zillow, we paid $260K in 2010)
Cars-Honda Odyssey 191K miles (2003)
         Mercedes 350 94K miles (2003)- this is DH's and is not negotiable
403b - $86K Fidelity (we contribute 10% and get 10% employer match)
403b - $35K TIAA-CREF (old)
401k - $3500 TIAA-CREF (my old one)
online savings $4K (e-fund/car replacement fund)
whole life insurance plans $25K (theses are my in-laws in the name of DH and the kids, so ours to cash out as desired)
Coverdell college accounts for kid/s $3500 (old)

Liabilities:
$1800-DH's car (paying $400/month)- 4.875%
$211K-house (paying $710/month to principal, also have PMI of $73/mo until this is down to $203K, I think) 3.875%

Goals:
1. pay off car loan
2. pay down home loan to eliminate PMI
3. increase emergency fund.  This is to pay for a $10K vehicle to replace minivan by 2018 (earlier if needed). Also, have ongoing home maintenance issues...

DH should be getting a raise later this year.  The amount and exact time are not clear yet.  This will affect other decisions (such as increasing amount going to retirement fund). 

We get a 90% tuition discount at state university.  I had this in mind, whole life policies, and coverdell accounts in mind for college.  Funding the other 10% of their college is not my top priority, honestly. I will consider this more in depth once I feel like everything else is secure.

Also, we would love if DH could retire in 18 years when all kids have had the opportunity to attend 4 years of university with his discount.  He will be 55.  I will be 53.  Our kids currently are ages 3-11.

So, the extra amounts I am currently paying to things, on top of minimum payments:
$400/month to online savings account
$300/month to mortgage
$63/month to vehicle loan

When car is paid off in a few months, I rollover that to the mortgage to contribute an extra $700/month to that.
When PMI is dropped, open Roth IRA for myself, contribute the max to it annually. Do I transfer my old retirement account to IRA?  Also, since my account is with TIAA-CREF, should I move the money to Vanguard for my future Roth IRA?
When DH gets raise, increase his contribution to %15 (employer still contributing %10), so total contribution would be %25.

I am curious if you all think I am putting my extra funds in the right place.  Thanks!

[Cheddar Stacker]

Personally I would change things a bit, but maybe I'm missing something you didn't include in the facts.

1) Awesome 401K match of 10%. Once car and PMI are gone I would make sure to max 401K ($17,500, not the 15% you mentioned) to reduce taxes as much as possible (see number 5 below as well for this), and don't wait for the raise to do it.

2) Move the old 403b and old 401k into one or two Traditional IRA's if possible, maybe at Vanguard. Much lower expenses than leaving behind at old jobs.

3) Pay off the car loan today with your online savings account. It can't be paying you more than the 4.875% on the car loan. No facepunch from me on the car since it's not your decision and I don't know all the circumstances, but make the best of it by getting rid of the high interest rate ASAP. You aren't paying much in interest since the principal is so low, but you have the cash in savings already.

4) Take all monthly savings from paying off car loan, plus the entire allocation of $400 from your online savings account, and put every extra $ towards the mortgage until you get to the 80% LTV of $208K ($260K * 80%), not the $203K you mentioned. Congrats, you're only 2-3 months away from getting rid of the PMI theft. Contact the bank right away to make sure this disappears.

5) Now that car loan and PMI are gone, re-start your $400/month to car savings, and take all your other savings ($400 car loan, $73 PMI, $300 extra on mortgage) and contribute the max of $5,500 to a Traditional (not Roth) IRA which you've already opened with your old retirement funds. The tax savings are tremendous. Please see this thread if you haven't already:
https://forum.mrmoneymustache.com/welcome-to-the-forum/optimize-your-taxable-income/
Don't worry about putting the money into a Roth, because if you retire in your early/mid fifties you will have 10-12 years to move 401K/IRA funds into Roth's very slowly without paying any taxes due to your standard deductions/exemptions. Once you start collecting social security this becomes a bit harder and you will pay some tax, so maybe switch to Roth contributions in 10 years if need be.

6) Lastly, if you are paying whole life insurance premiums, I would strongly consider cashing out any cash value (the $25K you referred to), contributing that into the Coverdell accounts, and if you need life insurance picking up a 20 year term policy for you and or your husband with a death benefit equal to what you think you need. Once your net worth exceeds the coverage, consider dropping the policies altogether to save the premiums. Whole life premiums are typically 4 times term premiums with the same payouts.

These are small tweaks to your plan that I think will optimize your results, but either way you are very close to the point where it will start to feel like you are riding on the right side of the wave. You are committing a lot of extra dollars right now to the car loan, and the PMI, and when they are gone your savings will take off. Congrats, and good luck!

[Cheddar Stacker]

I understand your "issues" with your spouse, and I have some similar ones. Wouldn't trade her for the world though, and I'd only assume the same for you. However, it really makes it harder to setup the ideal FIRE track.

1) I think if you can provide a convincing enough argument - i.e.-calculate exactly what your taxes would be if you maxed his 401K and your Traditional IRA (Plus one for him if possible, so up to $11,000 T.I.R.A.) you might be able to get close to $0 tax. This could actually be an increase in his net paycheck. I know it sounds ridiculous, but run the numbers to see. With 5 dependents you guys have a lot of options.

3) I re-read your post after my response and didn't originally realize the online savings was an emergency fund as well. That makes a small difference, but really you have a lot of flexibility on a monthly basis since you have extra funds going to various loans/savings, so you could adjust any of those if an emergency did occur. You should also consider getting a Home Equity Line of Credit now while things are rosy. It would be harder to get in an emergency (injury, loss of job), so you should have it setup for the emergency before it happens.

4) $73 PMI * 5 months = $365 down the drain, which is slightly more than the appraisal cost. 2% (80%-78%) of the $260K value of your house is $5,200. You are currently paying $710 principal I think, so that will take you 7 1/2 extra months to pay off $5,200 to get to 78%. With the appraisal though, it could come back at $250K then you're even worse off. I'd take the sure bet and wait until you get to 78%, but accelerate as much as possible. Pay off the car with the emergency fund, then pay everything you can to the mortgage to get rid of the PMI. It's wasted money and you'll be glad when it's gone.

5) So after posting my reply I read a few of your other posts out of curiosity. I saw you planned to use the Roth toward college if needed. This is a good plan. TIRA $ is not accesible in your 50's without a) paying taxes on the draws and b) either converting them to Roth or using the rule 72 T or whatever it's called. People post on this rule all over the place, but I only have a basic knowledge of it. I like the property purchase idea, and if that's your intention a Roth would likely be better, or at least you could split the contributions 50/50. Again, this goes back to tax planning, so make sure you read the link to that thread, particularly SeattleCyclone posts which have a ton of good info. You can access the principal contributions to a Roth at any time, but you have to leave the earnings in without tax/penalties/59.5 age.

6) I knew the in-laws were involved in the whole life policy somehow, just didn't know to what extent. I would leave it all there for now. On your term insurance, your $500K coverage could be cancelled within 3-5 years at the pace you seem to be going. Net worth is north of $200K and growing quickly based on some quick math. Once NW exceeds $500K there is no real need to carry that policy. Consider dropping his term policy once your NW exceeds maybe $750K since he already has $250K coverage through work. Keep the policies if there are any major health risks or other concerns, but if your assets are sufficient there's no need to pay the premiums anymore.

If you have any tax specific questions let me know. That's how I earn my stache, so I have a few tools to work with. Good luck!

[MrsPete]

Initially I thought you were behind on college funding with only $3500, but with a 90% discount, you're fine.  What if the kids want to attend a different university?  If it's a matter of choice, it's easy enough to say, "Too bad, so sad, this is what we can provide", but what if one of your children wants to pursue a major that isn't available at your husband's school?  For example, my state has 16 state schools . . . but if you want to be an engineer, only three of them are really a choice for you.  I suggest you and your husband discuss your plan before the kids reach high school.  Being able to send your kids to school with a 90% discount is WONDERFUL, but it is kind of an "all your eggs in one basket" scenario in that it assumes he will continue to be employed there (which isn't always a choice) and that the kids will attend that school. 

Initially I thought the $400/month car payment for your husband was crazy, but if he's putting in 18 years more work so that the kids can have a college education for a discount, discount price, I can see that he deserves to have "his thing". 

You're so close to getting rid of the PMI on your house payment.  That $73/month is just money down the toilet.  I'd be tempted to pay down your principle to that 203K figure so you could rid yourself of that plague.  I think it'd be worthwhile in the long run. 

As for your retirement funds, if he's in education, does he have a pension?  If so, how secure is it? 

Your oldest is 11.  Even if you've taught your kids the meaning of the words NO and FRUGAL, their expenses will increase in the teen years.  That's not really advice, just a warning from someone who's living it right now.  It's imperative to have your finances "prepared" before you hit those expensive years. 

[Cheddar Stacker]

Good point MrsPete on the college situation, particularly the part about losing the job. I'd think this is likely a Tenure situation, so it's likely pretty secure.

In regards to the "what if my kid chooses another school" scenario, I say that's not Mom to 5's burden. I know many want the absolute best for their kids and are willing to pay anything for it. I have no problem with their choice to do this, but I'm different, and I know many here agree to some extent. It won't hurt your kids to have to contribute something to their education. It gets them vested in the process, and likely gets them to work a bit harder.

My plan is to offer my kids the absolute maximum amount of in state public university tuition - on me. If they choose to go elsewhere, the additional cost is on them. If they obtain scholarships, the tuition fund turns into a house down payment fund. I don't think this is unreasonable for Mom to 5 to consider, particularly since they have such a sweet tuition deal due to the job.

[MrsPete]

The what-if-they-don't-attend-this-college thing probably occurred to me because I teach high school seniors, and I spend lots of time talking to kids about where they're going to school (and why).  Many of them have no real reason for choosing the school they choose, and many more are going for poor reasons -- boyfriend chose this school, they want to go far from home, they want to be near the beach. 

However, I would be sympathetic to the kid who says, "I want to go into nursing, but the university where my dad teaches doesn't offer that major.  Do I major in something else, or do I rack up debt?"  Personally, if you run into that problem, I'd be tempted to encourage the student to get the first two years at "the cheap school", then go elsewhere.  That'd allow you to get half the education at an almost-free price, and IF the student ends up changing majors, you've lost nothing. 

Good to hear that your husband's job is secure, but I was thinking along more sinister lines -- not nice, but these are things you should consider:  What if he should die or become disabled?  90% of your college plan would disappear.  I know you discussed life insurance earlier, but I wonder if -- with your kids' educations and futures tied into his employment -- if it'd be wise to get life insurance (and disability insurance) to cover that 90%.  Sorry, I know that's a horrible thing to think about, but if something bad should happen to him, you'd have your hands full enough without also losing the kids' college accounts. 

[Cheddar Stacker]

Taxes-You are likely already in a very good tax situation, and here's a guess at what it looks like:

$84K gross. Subtract 10% 403B = $8,400. Subtract 7 exemptions * 3,900 = $27,300. Subtract either standard or itemized deductions = standard is $12,200. Taxable Income = $36,100. Tax = $4523. Child tax credits = $5K. That means you likely don't pay any federal income taxes, and your husband should fill out a W-4 that lists his federal withholdings as exempt. This will give you an increase in your monthly take home pay unless he did this already. I can't speak to your state as I have no idea where you live, or the specific rules related to that, so step carefully there.

That was obviously a very rough estimate of everything. At your income level I don't think you have a chance of qualifying for the Earned income credit or the savers credit unless your husband wants to do the full $35K he's eligbile for, and even then I'm not sure it would work.

You should try to play around with this https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ and figure out how much you actually need to live on, add a little bit of padding, then optimize from there by maximizing your 403B contributions.

[MrsPete]

School choice dilemma: We have tuition break at all state schools

Ah, that sounds much better.  I was hearing, "They must attend this one school.  Only this one school."  And that was sounding quite restrictive to me.  However, if they have the choice of ALL your state schools, any major should be possible. 

Again, I wouldn't have any problem saying, "Nope, you can't go to the school near the beach."  Or, "Sorry, I know you'd love to wear red and scream, 'Roll Tide', but you can get the same education in our own state."  But I would be sympathetic to a kid who couldn't find his choice of major because he was limited to one school. 

[Cheddar Stacker]

Congrats on paying off the vehicle loan. Congrats on increasing your mortgage principal payment - that PMI will be gone before you know it.

After PMI is gone it's really up to you on the Traditional/Roth question. You are paying $0 income tax, but that's after applying all the child tax credits against your actual bill. Those credits can be refundable to you. If you decrease your actual tax via 401K contributions it will bring a bigger refund, so you're still in a situation where you can defer taxes, but it's only at a 15% rate.

Whatever you do, don't put amounts into a tax deferred account (401K) if you are no longer getting a benefit for doing so, since you likely will pay some tax on the withdrawals from that account. Once you reach the 10% tax bracket ($18K ish) it likely doesn't make sense to contribute anything else to a tax deferred account.

So yeah, Roth is not a bad play, but you might have a little more tax deferral opportunity if you really want it.