Re: Retirement account and buying car
I. 401-K
I urge you guppies not to drag 401 into Islamic vs. un Islamic debate. This poor guy seems to be young and most likely just starting his job in the USA. So 401K is really realy important for him. The longer he invests in it, the more money he will have when he retires. You guppies in EU have some retirement savings thanks to the government. However in the USA, there are very few jobs where federally secured pension is provided. So you have to build your own "nest egg" in the USA.
Making 401K Islamic is very easy.
Here is how!
a. Invest in stocks (or stocks based mutual funds).
b. If in doubt, do not put your 401K in bonds and money maket (or mutual funds that are based on bonds or money market).
Benefits of 401K
1. This is one of the best saving option for your retirement.
2. You company most likely will match your contribution upto certain percentage. So that's like earning a bonus.
3. According to money magazine, if you were 25 yo, and started putting $200 a month and stopped when you were 35. Then you will have more than a $ 1 million available when you retire. If on the other hand you were 35, and invested the same amount of money till you retired, then you will only have $400,000 for your retirement.
These numbers could be slightly off, but the point is to start saving for your retirement as early as possble.
4. Tax savings. 401K is pretax. So $200 out of your pocket is really $150 a month after tax (based on 25% tax bracket).
Saving Options beyond 401K
**1. ROTH IRA** If you are saver and max out on 401K then put whatever extra you have in the ROTH IRA. This is post tax and your company doesn't match it. Still it has a lot of tax benefits.
**2. Buy a house **through an Islamic bank and you will save money on rents.
II. Buying a car
a. Check on the web for Islamic car buying OR
b. Lease the car and watch your miles. Or buy extra miles if you thing you'll drive more than what the leasing company is offering.
**Disclaimer: **I hope it helps and do consult a tax adviser and a investment broker for more info . They will help you on the exact nature of your taxes and investment options.
***With peace and love to all
In memory of slain soldiers and officers of Pakistani army
Pakistan Paindabaad.