Obtaining loans within a 401k plan is allowed by current law, but an employer is not compelled to do so. That’s because many small companies simply can’t afford this feature. However, if offered, an employer must follow strict and detailed guidelines on making and administering theses loans.

And make no mistake: the rules constantly change. Below is a quick rundown of the latest rules governing 401k plan loans, applicable to 2014. For  more details about this year’s loan rules, consult these IRS guidelines.

An employer can restrict 401k loans to these purposes:

• to pay education expenses for yourself, spouse, or child;
• to pay un-reimbursed medical expenses;
• to prevent eviction from your home; or
• to buy a first-time residence.

Most 401k plans let you borrow up to half the balance (or $50,000, whichever is less), with a five-year period to repay the loan—or longer, if you’re using it to buy your first home. Interest rates are usually only a few points above the prime rate. There’s no credit check required, and with some plans your money is only a phone call away.

In theory, it’s a great idea—borrow from yourself, and pay it back with interest. But as with most financial issues, it’s not as simple as it sounds. Can you afford to forego the tax-interest your retirement funds otherwise could—and should—be earning all the time?

The Solution:  With any loan, be sure to do your homework, and be savvy about whatever form of loan you ultimately choose.

Action Step 1:  Ask around.  If you’re a homeowner, look into a mortgage refinance or home equity line of credit. You already have to pay off your debt—and the interest would be tax deductible.

Action Step 2:  Evaluate all your options. Do you have a money market account? Or a savings account that’s not earning much interest?  Borrowing money from either of those poses less risk for your long-term financial health. You might also check into an unsecured debt consolidation loan. These tend to carry higher interest rates than a mortgage refinance or home equity loan, and the interest won’t be tax deductible. But it’s still a better deal than most credit cards.

Action Step 3:  Tap in—but proceed with caution. If none of the above options apply, and you’re in a real financial emergency, borrowing from the 401k definitely beats making a hardship withdrawal. The good news is the money can be repaid at relatively low interest rates. Just be sure you can repay yourself within the required time limits—and still make contributions to your 401k plan, so your retirement nest egg doesn’t take a major hit.

Additional Tips

Pay yourself back. Otherwise, your loan will be considered a premature distribution (assuming you’re under 59 ½ years old), and you’ll pay a 10 percent penalty, along with state and federal income taxes.

Read the fine print. If you change jobs, there’s a good chance you’ll have to pay the loan back immediately, in full, or face steep penalties and tax charges.

Don’t make a habit of it. Borrowing from your 401k may be a viable option in a pinch, but don’t let yourself fall into a pattern of dipping into your 401k instead of saving for things you need along the way. That’s a recipe for long-term troubles. Also, remember that you’ll miss out on any matching funds your employer may offer.

Research alternatives. Try shopping around for a low-interest credit card—there are plenty of banks with great deals on offer, particularly if your previous credit history is solid. These days you can find APRs of 6 percent or even less, which usually works out better than the interest you’d pass up by withdrawing your 401k funds.

Consider this loan a last resort. In most cases, you’ll find there are better ways to borrow than risking your retirement funds. If you’re a homeowner, home-equity loan offers a good value, and unless you’re borrowing more than the value of your property, you’ll be able to deduct the interest.