Ok seriously. I looked at all of the college plans. All of them seemed to have something that made me decide against them. From recollection, which may be bad, 529's HAVE to be used for some sort of education by someone in your immediate family or you have to pay a percentage penalty plus taxes, yes?
Salient points:
- Your mortgage rate is ridiculous. Either pay it down or refinance it aside from the college savings plan
- The period you have from now until the first one goes to school is short. You're looking at 6-7 years. Investments in stocks and bonds have had some fairly lousy returns in periods that short. But we've just had a wild ride for 5 years so maybe the next 5, not so bad? But who knows
- Your kids might not decide to take any further schooling
- You may choose to not fund their schooling. Yeah I know. Wait until they're teenagers.
I decided after looking at the range of options that just doing what i'm doing and paying for Gabes schooling out of our taxable or IRA's (we will be in our 60's if and when he goes off to college). If he decides to start a business instead and seems to have his head stapled on right, I can help him start that. If he has a good career figured out and wants to get married and have kids and buy a house instead, I can help him with that instead.
Seemed I was giving up some of the tax advantages of the various plans, but gaining a lot of flexibility.
Consider paying the mortgage down and somewhat increasing the risk/return of your portfolio. Cut the low paying bonds a bit. You'll be getting a 6.75% return on the pay down (ok, 96,000 arguments why that changes a quarter or half percent, it doesnt matter much). If the market does well or great, your increased equities will give some nice returns.
You say that in four years you'll have paid off the house. Your kids will be 12 and 15. You should have a real good idea of what the deal is going to be with the 15 year old and 2-3 years to sock some cash away. By then you'll have a pretty good idea of what is going to happen with the younger one.