So confused about where to put my money

[FIT_Goat]

First, some background.

When I first started teaching, my mom told me to be sure I started saving for retirement.  Being young and clueless, I asked her how much I should contribute.  Considering her history of financial missteps, this was the wrong well to draw advice from.  She told me, "Just do $120."  So, I set it up as $120 a paycheck and promptly forgot about it.  Turns out she meant $120 a month, which is even more of a pittance than my $120 times 22 paychecks (no pay during the summer).

I currently have two retirement accounts (both 403b, which is similar to a 401k but is what teachers in my state are offered).  I was initially contributing to one, but was unhappy with the percentage returns (under 2%).  I started with the second (better but still not great returns of like 3-5%).  The returns are to my best recollection.  I've got the statements in a box, but I have a broken foot and can't climb up to get them down right now.

I do not get any sort of match from my employer.  So, there's really no advantage of using these accounts.  Current combined balance of both accounts is about $33,192.  I am still throwing $120 a pay to the new account.

I have $14,000 in savings.  I was thinking of taking $10,000 and opening an index fund.  But, would it be better to open an IRA (which one is tax advantaged again)?  Should I maybe open the index fund, and use another couple grand to open an IRA also.  Maybe max out the IRA each year, then throw everything over that to the index fund?

I feel like I have messed this up in the past and I have been frozen over the last week just trying to avoid making a mistake here.  I have tried to include the relevant details here.  If you need more information, please ask.

Note:  I will be rebuilding the savings at about $300 a month to get it back to a point where I have several months of expenses in liquid funds.  I have a mortgage that I am over-paying also (about 16% to 36% of my goal savings will be directed towards that).  The APR on the mortgage is 3.25% and I have an annual 0.85% MI premium (FHA loan).

[ChpBstrd]

I wouldn't say there's NO advantage. By contributing to your 403(b) you are deferring taxes on both your paycheck and your annual earnings in the account.

Think of it as borrowing your taxes back from the government for free and investing it for a few decades. If you could borrow millions of dollars from the government for free, would you do it? Heck yea! So do it with what's available. I'd throw all you can throw at that 403(b).

Also, make sure your asset allocation is right for your age. If you haven't changed it from the default, you're probably in a "stable value" fund which explains the 2% returns.

Also, gripe to your HR department about that zero match. That's not typical.

At this point, I don't see the need to open a new account until you've contributed the max to that 403(b) ($18k/year). At that point, open a Roth IRA with an online brokerage and contribute another $5,500/year. If you ever change jobs, get a "rollover IRA" account with an online brokerage and move your 403(b) money there to take advantage of lower fees. Then buy a Vanguard index fund like VTI, set dividends to reinvest, and forget about it for a few years while you start from scratch with your new employer's 403(b) account.

[FIT_Goat]

No match is very typical for public schools. I don't know of any county in my state that has a match. There could be some, but I haven't run across them.

The fees are high and the returns are low, consider that I have contributed for over 10 years and barely have more than what I put in myself. There is also a dearth of investment choices. There are maybe "three" options available and my 3% current one is the highest and most aggressive.

I know the tax savings is nice (15% bracket for last dollar taxed last year), but I don't make much and should be able to put the first $5,500 into an IRA tax free. Then what is above that can go to a 403b of 457 plan (or both). Although, I have only read about the 457 option recently, and never seen it at work.

[FIexec]

My wife was a teacher and only invested in her school's 403b plan.  In hindsight that was a horrible option.  The plans were annuity contracts that made my skin crawl when I finally got around to taking control of our FIRE investments.  Complex financial devices, with load of jargon in long booklets with hidden fees and mediocre investment options.  I decided to leave the money in the plan for an extra year to avoid a 1% "surrender charge" (read: stealing her money) for not keeping the money in the plan for 12 years total!

So... I would say understand what that 403b plan actually is.  You may be better off by funding an IRA in Vanguard FIRST.  Then the 403b second.  As ChpBstrd mentioned, it still has some tax benefits, and avoiding taxes is your patriotic duty! :)  Exploit the option you have with 403b plan where it makes sense now, and know when you can roll it over to an IRA or another (better) employer sponsored plan when your situation changes.

[FIT_Goat]

Surrender charges are ugly for my plan, but it is only 6 or 8 years (only, lol). I think it may be "rolling" though. So, I can remove funds that have been in for more than six without surrender, but contributions from the last six are still untouchable.

Yeah. The plans are bad. I knew they weren't good, but didn't know how bad they were. Aside from the tax benefits, I would have done almost as well in a savings account.

[FIexec]

Aside from the tax benefits, I would have done almost as well in a savings account.

Well, that's probably at least 10% at the marginal rate.  Take comfort in that. Use this as a learning opportunity.

Hold your chin up and march faster to FI.

[Radagast]

Wait until January and you can create your 2016 and 2017 IRA's at the same time, which is good for $11,000. Vanguard's 2060 target date fund VTTSX or 80/20 Lifestrategy Growth fund VASGX are both excellent choices, and with $11k you will meet any minimum fund requirements.