Borrowing from your 401(k) should be a last-resort measure for important expenses such as medical bills or, in some instances, to help buy a home if that makes financial sense.

You shouldn't tap your 401(k) for expenses such as cars, vacations, weddings or other big-ticket items that are all about diminishing returns.

Here's why: You will be on the hook to pay yourself back with interest, and by taking a chunk of your retirement money out for some period of time, you forfeit the growth that could have occurred on that money plus the money left in the account. A larger balance can compound faster than a smaller one.

Plus, if you leave your company while the loan is outstanding, you may be asked to pay it back as soon as you leave or soon after. Otherwise, the money will be treated as a distribution, subject to income tax and possibly a 10 percent early withdrawal penalty.

Remedy:

If you really need money, you first should try to find a competitive rate on a personal loan or home equity line of credit before considering your 401(k) as an option. (See how a 401(k) loan might stack up against a home equity line of credit.)

If you need to tap your 401(k) for a critical expense and have no other option, budget for the smaller paycheck you'll receive since your employer will automatically deduct the loan payments from your check. The last thing you'll need is to incur any further debt by spending more than you take home.