SOLVED: What Can a Middle-Class Family Do to Get Ahead?

Jon and Beverly Auvil of Huntington, W.Va., have three daughters, two jobs and a combined income just shy of $100,000. They're trying to save for their daughters' college expenses and their own retirement while juggling a mortgage, two car loans and monthly payments to the orthodontist.

The Auvils are actually doing a fine job of balancing current needs with long-term goals, and with a few minor adjustments they can do even better. They're in the sweet spot to take advantage of a slew of middle-class tax breaks that begin to disappear once family income tops $100,000.

For instance, they're entitled to a $1,000 federal tax credit for each child younger than age 17 (all of their daughters qualify), a perk that is phased out for families with incomes greater than $110,000. Unscathed by the alternative minimum tax, which eliminates a number of tax breaks for many families with six-figure incomes, the Auvils also reap the full benefit of the $3,300 personal exemption they can claim for each of their five family members, plus deductions for state income and property taxes. They also write off charitable contributions and mortgage interest.

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Jon, 44, contributes 6% of his salary to his 401(k) plan, and his company kicks in another 1.5%. He also adds $200 a month to his Roth IRA (another perk for which higher-income individuals are ineligible). Beverly, also 44, is an elementary school teacher. She contributes 5% of her salary to her 403(b) retirement plan to supplement the pension she expects to receive in retirement.

The couple direct $200 a month to an emergency fund. They could boost their return by switching from their local bank to an online account with EmigrantDirect or Citibank, which are currently paying 5%. (Calculate how much you should save in your emergency fund.)

The Auvils also add $150 a month to a 529 college-savings account for their eldest daughter, Caroline, 16, which qualifies them for a state income-tax deduction. And they have already fully funded a prepaid-tuition plan for their second daughter, Elizabeth, 14. Once the Auvils are finished paying $220 a month to the orthodontist for the two older girls' braces, they'll put some of that money toward a college-savings plan for their youngest daughter. Because Katherine, 6, is now in school, they no longer pay child-care expenses. Working families who do need care qualify for a tax credit.

The Auvils will retire one car loan in January, freeing up an extra $400 a month. Some of that money will go toward paying higher car-insurance premiums when Caroline starts to drive.

Thanks to the low cost of living in Huntington, a city of 50,000 on the southern bank of the Ohio River, the Auvils are able to stretch their income. Their mortgage payment is just $850 per month, and they expect to pay off the loan in six years. They can shift some of that money to boost their retirement savings accounts, just as they'll both be eligible for larger, catch-up contributions.

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