This financial move should be a 'last resort,' says CFP—but 1 in 5 workers has done it

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If you're struggling to make ends meet, you may be eyeing any cash you have stashed away for the future as a solution. In fact, about 1 in 5 workers have borrowed or withdrawn money from retirement accounts, according to a recent survey from SoFi. However, withdrawing money from a workplace retirement account, such as a 401(k), is generally advised against. The money is subject to income tax, plus you'll be hit with an early withdrawal penalty if you're younger than 59½. What's more, whatever money you take out doesn't get the chance to grow at a compounding rate — a move that could cripple your portfolio down the road. "The long-term consequences of that are going to be very painful," Anne Lester, a retirement expert and author of new book "Your Best Financial Life: Save Smart Now for the Future You Want," recently told CNBC Make It. But what about a loan? After all, you're effectively borrowing your own money and paying yourself back, with interest. In a narrow set of circumstances, it can be a smart financial move, says Jared Friedman, a certified financial planner and partner at Redwood Financial Planning in Scotch Plains, New Jersey. But tread carefully. "We typically recommend it only as a last resort," Friedman says. How 401(k) loans work The specifics of a 401(k) loan will vary from employer to employer, but here's how they generally work. You can typically borrow up to $50,000 or 50% of the vested balance in your account — whichever is less. From there, you'll have a set amount of time — commonly five years, but more if you use the loan to fund a home purchase — to pay the loan back via regular, equal-sized payments. You can, however, pay the loan back ahead of schedule without penalty. Like most loans, you'll be charged a rate of interest. In this case, that's often 1% or 2% plus the prime rate, which is the rate at which banks lend to their most creditworthy customers, currently 8.5%. Unlike other loans, though, interest isn't going into the hands of an outside lender, but rather, right back into the balance of your 401(k) account. Because you're not dealing with a lender, borrowing from your own 401(k) doesn't affect your credit score, nor do you need to undergo a credit check to get one. There are some costs and inefficiencies associated with these loans. Some plan administrators will charge an origination fee for taking the loan and may tack an annual fee on top for each year you haven't paid off the balance in full. And while money in your 401(k) is put in pre-tax, the money you pay back is in post-tax dollars. Any money you then withdraw in retirement is subject to income tax, too — meaning you effectively pay taxes twice. If you're unable to pay the loan back, it converts into a distribution, meaning you'll owe income tax, plus a 10% penalty on your outstanding balance. Leave your job or retire with the loan still outstanding, and you're on the hook for the entire balance. If you can't pay it off then and there, the balance gets converted into a withdrawal. When borrowing from your 401(k) makes sense — and when it doesn't