Less money means less growth potential. Taking money out of your retirement account is like laying off a productive employee from your business. The funds aren't there to work for you. Let's say you have $100,000 in a 401(k) account and take out a $20,000 loan. That leaves $80,000 working for you instead of $100,000. If the retirement funds are invested and earn 8% annually, your $100,000 will grow to about $466,000 in 20 years. Using the same rate of return and time period, $80,000 will grow to only about $372,000. True, repaying the loan into your retirement account may offset some of this difference. But the opportunity to earn a greater return on that $20,000 withdrawal is likely gone forever. This is a hypothetical example used for illustrative purposes only. 

What happens if you lose or change jobs? If you're laid off or find a wonderful job elsewhere, many retirement plans require full repayment of the 401(k) loan within 60 to 90 days of your termination. Otherwise, the outstanding balance may be considered a distribution. And if you're under age 59½, you could be hit with a 10% early withdrawal penalty as well as ordinary income taxes.

Is more debt a good idea? Make no mistake: a 401(k) loan is just that — a loan. As with any other type of debt, you're required to pay it back. So review every option. Can you find a better rate of return elsewhere, say, by borrowing from a friend or relative? Can you take out a home equity loan with tax deductible interest and no penalty if you change jobs? Finally, ask yourself: do I really need the money?