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My wife is a teacher at a public school and is
thus eligible for a 403(b). From what I have read,
she can either invest in mutual funds or variable
annuities. Any suggestions on which would be better?

The mutual funds are going to be a better bet for her. Annuities invest in mutual funds, but you pay an extra fee on them for the benefit of having them be tax-deferred. Her 403(b) is already tax-deferred. Therefore, if she invests in annuities, she is paying an extra fee for something she already gets for free.

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