For all too many workers, taking a loan against the balance of a 401(k) or 403(b) account seems like a good deal. After all, you reason, the money you pay back, including the interest, goes right back into your account. Before you succumb to the 401(k) or 403(b) loan temptation, however, it pays to take a long hard look at just how bad a deal it actually is.

There are a number of important reasons why borrowing money from a 401(k) or 403(b) plan is the worst deal in town. The reasons to leave the 401(k) or 403(b) plan intact and seek a loan elsewhere are many, and they include:

Double Taxation Putting money away in a 401(k) or 403(b) program is a great way to shield the income from current taxes while allowing it to grow tax free until withdrawal. Along with the Roth IRA, the 401(k) or 403(b) is the best way to save for retirement. If you invade that nest egg prematurely, you will be pulling out those pretax dollars. To make matters worse, the money you use to repay the loan will already have been taxed. When you do eventually withdraw the 401(k) or 403(b) money in retirement, you will get hit with taxes again a double tax hit.

What if You Lose Your Job If you get laid off, or leave your employer to take a better offer elsewhere, you may have to repay the entire balance of the 401(k) or 403(b) loan in just a few months. Even worse, if you do not have the money to repay, the balance of the loan will then be treated as a withdrawal, making it subject to a 10% early withdrawal penalty. This treatment will also mean the money is fully taxable.

Reduced Returns The whole idea behind the 401(k) or 403(b) program is to harness the power of time to grow your nest egg. If you break that nest egg prematurely, your returns, and your retirement, will suffer.

The bottom line is that borrowing money from a 401(k) or 403(b) program should be a last resort, not the first place you go looking for easy money. A 401(k) or 403(b) loan can seem like a good deal at first glance, but on closer examination it is anything but.