pay off debt or fund 401 K to reduce taxable income

Have a burning desire to be debt free includng home in 2-3 yrs. Owe 76 K on mortgage, 35 on home equity loan, 8 K on credit card. Household income 188K. If we fund 401k this yr to reduce income to <160, we qualify for American opportunity college credit of $2,500.00 But, the $ 28-30K money would be diverted to 401 K instead of paying down debt. We are age 55 and 57, with a freshman in college, and a freshman in high school.

any thoughts? Our current saving in IRA and 401 K is about 600K.

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