The more you borrow, the less money you have to potentially grow for your retirement.  Leave your money untouched and you could be looking at a better retirement lifestyle or an earlier retirement.

If you leave your contributing employer you still need to pay the outstanding balance, within a specified time period.  If you don't the outstanding amount will be considered a distribution, which will subject you to ordinary income taxes, and possibly a 10% early withdrawal penalty if you're less than age 59 1/2.

You pay for the privilege of a loan with an initial fee of $35 and $3.50 per month - without some of the benefits.  If your loan from your plan account is for a home, the fees may be lower than mortgage costs.  But you won't be able to refinance if rates drop, and you can't take a mortgage interest deduction on your income tax.

Your loan money misses out on growth opportunities in a rising market.  You will want your money invested when the stock market is rising.  But if you take out any of your retirement savings account money for a loan, that money is not invested and, therefore, is missing an opportunity for growth.  As for growth opportunities, consider this: In the 10-year period ended June 30, 2001, the average annual return for the Standard & Poor's 500 Index (S&P 500® Index) was 15.10%.  For the same period Lehman Brothers Aggregate Bond Index, a measure of more than 6,000 government and corporate bonds, and mortgage-backed securities, returned 7.87%.  These returns indicate that, for those who kept their money invested over the long term, there were many opportunities for growth in the stock and bond markets.  Of course, past performance is no guarantee of future results.

If you default on your loan, the IRS considers the outstanding balance a distribution.  The distribution will be subject to ordinary income taxes, and possibly a 10% early withdrawal penalty if you're younger than age 59 1/2.  You will also never be able to take out another loan.

It may be better to borrow elsewhere.  If you have the equity to use as collateral a home equity loan may be a better deal than borrowing from your retirement plan.  This type of loan may offer lower rates than an unsecured loan, and your interest is tax deductible.