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Greetings, Tmackfool, and welcome. You wrote:

<<I recently began teaching at a state university, and went with the Optional Retirement Plan rather than the State Retirement plan. We are never allowed to switch between the two. I did not want the state plan, because I thought I could do better investing myself (with no experience!) and if I ever leave I can take the entire Optional Retirement Plan, including the state's contribution (5.53% of my salary instead of 9.75% on the state plan - they take out 7.25% of my salary). With the state plan, I would only get back what I put in, with interest, but none of the state match. The only three companies to choose from are Aetna, VALIC, and TIAA/CREEF. I went with Aetna because it was the biggest company and I felt it was stable, whatever that means!

I also chose to put $225 into a 403(b) every month, and put it into Aetna variable annuities (the same thing my retirement is in). There is no real index fund with the plan, but the funds I have so far are slightly beating the S&P 500 (for how long?!). There are no matching funds available.>>


So…. I assume the $225 per month is money over and beyond whatever contribution you make to the Optional Plan to get the maximum possible match from your employer. Otherwise, you're turning down an immediate, risk free return on your contributions that's tough to beat in any other alternative open to you. Therefore, I'm going to assume that you are getting all of the money from the State that you can, and that the $225 is "play" money that you wish to invest wherever you can get the biggest bang for your bucks.

<<Instead of putting the $225 into the 403(b), I was thinking of saving it for several months, then investing in either a Foolish Four or other stock screen, Rule Maker (every thousand dollars buy another Rule Maker?), or Dripping into Rule Maker companies. I wouldn't get the tax defered benefits, but I should be able to get returns good enought to more than overcompensate for the tax hike. I had thought about transfering the 403(b) to Fidelity's Spartan Market Index Fund (if the state approves that fund! The kit and prospectus is in the mail from Fidelity).

So I guess the questions, in a nut shell, are:
1). With no matching funds, put the $225 into
a) Fidelity's Index Fund(keep tax-defered status)
b) something Foolish, rather than the 403(b)
c) do both, part of the money in the index fund, part more Foolishly invested.
d) drop the first $2,000 each year into a Roth IRA, and the rest Drip into Rule Maker stocks.
--- this amount will increase in the near future to at least $250/month and after another year to probably $300/month.>>


After you have received all of the matching dollars from an employer's plan that you can, it's time to consider alternatives. The tax break on your contributions ain't everything. If you show the same investment discipline in the alternative as you do within an employer's plan (i.e., regular contributions that increase at the same rate as your pay does), you often can do better elsewhere. To see if you can, though, you must look at your options and crunch some numbers. I suggest one way to do that in Step 4 of my 13 Steps to Foolish Retirement Planning available for your reading at http://www.fool.com/Retirement/Retirement.htm .


<<2). What to do with the retirement fund? The options are much, much, much more limited. I am pretty sure that I can still beat the state retirement system with the variable annuities (even before I really learned about them! The state plan really stinks), but I would like to hear from anybody with experience Aetna, Valic, or TIAA/CREF. I am also going to write the retirement system board of trustees and ask them to consider adding Vanguard or Fidelity to the Optional retirement plan. Ok, so this isn't so much a question as a search for advice on how best to maximize variable annuitites in a far from perfect system.>>

If you're dissatisfied with your choices, than certainly lobbying for some more is an option. But do take a look at those offered by TIAA-CREF. Some aren't half bad.

Regards….Pixy

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