A few thoughts:
1. The biggest damage you can do to yourself is lifestyle inflation. Every extra dollar you spend is another $25 you will need to have saved by the time you retire to continue that level of spending -- and worse, the more you jack up your lifestyle as your income increases, the less time you have to save all that extra money, because the bigger money tends to come later and later. I am not worried specifically about A house or A car. But I am worried about the thought process: you don't want to have the next raise become an excuse to upgrade your lifestyle. Your $350K house was just fine when that's what you could afford, right? So is the $500K house something that you have been shooting for since you got married, or is it something that you have just decided that you want because now you can afford it? Same with private school: it's not just the school, it's all of the expectations and peer pressure that go with it -- nicer clothes, nicer cars, nicer vacations, contributions to the PTA/endowment, phones and cars for the kids, you name it. Look very, very, very hard at how all of the other families that go to that school live, because that is what you will naturally drift towards if you send your kids there. I have said it many times, but the best decision I ever made was living in a neighborhood that was well below what I can afford, because it helped shape my own and my kids' expectations about what life is like and how much crap parents need to provide.
2. Your retirement stash includes only the assets you intend to spend to cover your retirement. So a bigger house gets you nothing unless you are planning to sell it and downsize. And trust me, once you get used to a certain lifestyle, you're going to find yourself very hesitant to downgrade at 60, so I wouldn't even plan on freeing up that equity then (if you downsize at all after 30 years of private schools and half-million-dollar neighbors, I can almost guarantee it will be to a smaller-but-upscale-and-thus-equally-expensive place that caters to wealthy retirees). As a result, I consider a home as a consumption item in retirement planning, not an investment.
3. The 4% rule assumes that your assets are invested in a balanced portfolio of stocks and bonds. That means cash doesn't count. You are welcome to look at your cash as a backstop to cover X years of expenses, but you can't just include it in the rest of your assets and figure it in the 4% calculations. If you want the kind of growth you're going to need to retire at 60, you need it invested.
4. I am strongly against paying off such a low mortgage -- if the market doesn't return more than 3.5% over the next 30 years, we have bigger problems as a country, and none of us are going to be retiring anyway! OTOH, it makes less than no sense to owe money at 3.5% while having well over six figures sitting there earning nothing. So either invest it or use it to get rid of the debt. What you're doing now is the worst of both worlds.
5. I am a fan of 529 accounts. I have gotten to knock $10K off my state taxes every year, which saves me about $900/yr that I can use for other stuff. I also now have more than twice what I invested, which I can cash in and use without paying any capital gains taxes at all. Total win-win from my perspective; in fact, if I get close to dying with a buttload of money in the bank, if I'm smart, I'll use it to set up 529s for younger relatives and start working on some generational wealth. To mitigate my risks, I contributed only to the amount of the state tax deduction, and then saved extra in a regular taxable VTSAX account that I can use for whatever I need. But what's the worst that can happen? Well, I have two kids, so if one doesn't use it, I can roll it to the other (who appears to be on a med school track and so will need every penny and then some). I can use it for a kid's trade school if that's what they want. Or I can roll it over to myself, or to my niece and nephew who could really seriously use it. Or I cash in any leftover and pay the same taxes I'd have been paying anyway on the growth, plus a 10% penalty -- again only on the growth. So personally, I'm taking the 100%-certain up-front tax deduction and tax-free growth, and I'll take my chances on that 1% possibility that I might need to pay a small penalty on the earnings of whatever small amount of money doesn't get spent.
6. HSAs: the idea is that you pay current medical expenses out of cash flow, invest the HSA aggressively, and then let it ride until you need the money for medical expenses in retirement.