Mustachian way to direct the money?

[blockzilla]

Greetings all, wannabe Mustachian here getting started. Curious about feedback on how to direct the money in my case (pay down mortgage and/or cars early? 529 plans? student loans?) to get on track for an early retirement (for me at least, wife could go full time to $130K currently and likes her job, has given me option of early out when the time comes). Seems like so many ways to direct the current ~$3K per month savings rate to get us (meaning me, really! :-) ready for early retirement. Basics:

Age: Wife and I are 33
Kids: 2 kids, ages 2 and 6 months
Household income (me full time, wife 80% time): $215K
Anti-Mustachian Socal House -Mortgage/taxes/insurance: $3400 ($520K mortgage started in 2011, balance of about $510K)
Cars: 2006 Honda Ridgeline paid off (think I will trade this for a Fit in the near future), 2010 Hyundai Sonata with loan balance of $12K at 3%
Antimustachian commutes: 60 miles round trip (me), 32 miles round trip (wife)
Student loans: $50K owed at 2% rate
Current 401K balance: $250K combined
401K savings rate: maxed for both of us
529 for college: 0 balance, just started $500/month contributions
Cash savings balance: $50K, thinking of putting this into a lazy Vangaurd portfolio

Thanks for any and all input, hopefully we can narrow these categories down one at a time!

[grantmeaname]

Since you don't have any credit card debt, and your car and student loans are at awesomely low rates, your first priority should be paying down your mortgage until you eliminate PMI (if you have it, can't tell from the first post). After that, I'd start IRAs, fund the 529s, and then start a taxable investment account at your IRA custodian.

[blockzilla]

Thanks for the feedback! No PMI, we put 20% down to start with. Rate on the mortgage is 4.25.  We are in process of taxable investment with our "savings", but according to the IRA research I've done we are above the AGI limit for doing an IRA in addition to our company 401k's.  Logic tells me to invest rather than pay the mortgage and hope for better than 4.25%, but I do desire to get the mortgage off my back in much less than 29 more years.

[grantmeaname]

There's nothing wrong with paying down the mortgage, especially since yours is at a somewhat high rate.  You may do better in the long term in the stock market, but peace of mind is certainly worth something. As far as other tips for paying it off sooner: since you're doing so well contributing to your various savings goals, maybe your next budget challenge could be to send another $1500 or $2000 a month towards the mortgage. That would really speed up your time to pay off the loan.

You can contribute to a traditional IRA and just not deduct it, because the traditional IRA contribution limits are actually the limits for deductibility. If you want, you can even then convert it to a Roth IRA, but that may not make sense for your case.

[Another Reader]

You should be able to refinance that 4.25 percent mortgage to the low-mid three's.  In your shoes, I would do that immediately.  If you really want to get rid of the mortgage, you could refinance for 15 years under 3 percent.  Do the math to see if that makes sense.

I'm a believer in cash reserves, so I would hold six months of expenses in cash.  I would be especially cautious if there were any risk to either job.  I might accelerate the debt payoff as well.  You can afford the debt today, but what if one job disappeared?

Nothing wrong with accumulating assets in taxable accounts.  If I were thinking of FIRE, I would fund those as part of the pre-age 59.5 income strategy.  I would be mindful of tax efficiency in those accounts.

Overall, you appear to be in good shape.  You could probably reduce your expenses and increase your savings rate with a little effort if you were really focused on FIRE.