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What's a 457 plan?

A 457 plan is a kind of defined contribution retirement plan available to state and local public employees, but can also be offered by certain nonprofit organizations. They work much the same way as 401(k) plans: you can opt to divert part of your salary into the plan, and the money is automatically deducted from your paycheck before taxes are taken out. The money grows tax-deferred until it's withdrawn, and then Uncle Sam comes calling.

However, there are differences in the maximum annual contribution limits and the treatment of early withdrawals.