Re: Retirement account and buying car
Peace StirCrasy
Does the 401K account allow money to be taken out before retirement?
sure, it allows, but taking an early withdrawl defeats the purpose. anyways u pay taxes plus and early withdrawl penalty. I suppose once u withdraw it becomes an asset ..before that its an investment..since u can gain or lose based on your investments performance.
Re: Retirement account and buying car
Peace StirCrasy
Does the 401K account allow money to be taken out before retirement?
For certain qualified expenses (hardships are part of that) Yes. You can withdraw for anything else by paying a 10% penalty, but people generally don't do that.
You can stop contributing to 401(K) at anytime. So if you at some point reach a conclusion that you've socked away enough, or that your current demand is more than future demand for money, just stop additional contributions.
BTW from the sound of it zakat will likely be tax deductible as long as it is donated to qualified charities. That should put more money in the tax payer's pockets
Re: Retirement account and buying car
For certain qualified expenses (hardships are part of that) Yes. You can withdraw for anything else by paying a 10% penalty, but people generally don't do that.
You can stop contributing to 401(K) at anytime. So if you at some point reach a conclusion that you've socked away enough, or that your current demand is more than future demand for money, just stop additional contributions.
BTW from the sound of it zakat will likely be tax deductible as long as it is donated to qualified charities. That should put more money in the tax payer's pockets
Peace StirCrasy
Yes ... so people need to consider all of these things also when taking out a 401K ... Again I would plan up to may be a year in advance for major expenses and try to use live cash to control my affairs. As for retirement agreed people may stop putting into the account depending on how much they would need. That is a difficult art to perfect it does seem to be less materialistic than the original concept and I guess people may use low risk investments as a basis for their returns.
Furthermore scholars have given it the acceptance provided zakat is paid on it.
I guess I'll see my position through as much as I can by not taking out any such fund because I think it is better.
Re: Retirement account and buying car
As for retirement agreed people may stop putting into the account depending on how much they would need. That is a difficult art to perfect it does seem to be less materialistic than the original concept
I dont think its any different than the original concept, the annual limits to fund 401K are around 15K, and if ppkl have a 50% employer match, the max u can put away at this point is 22.5K/yr.
yes u have the option to do larger contributions known as catch up contributions if you are closer to retuirement.
but if you look at retirement age, avg life expectancy and inflation rate, u may come to the conlusion that majority of people do not have enough in their savings anyways. and 401K should be just one part of one's overall savings plan.
and I guess people may use low risk investments as a basis for their returns.
ahhhh, and thats where there is an issue, the low risk(low return) investments are bonds and money market funds, i.e..interest based, the highrisk(high return) are the ones that are invested in equities.
so going for low risk investments is the dodgy bit guvna'
Re: Retirement account and buying car
ahhhh, and thats where there is an issue, the low risk(low return) investments are bonds and money market funds, i.e..interest based, the highrisk(high return) are the ones that are invested in equities.
so going for low risk investments is the dodgy bit guvna'
Peace Rebel X
That makes sense.
The basic idea of rib'a is making money out of money or exchanging a large quantity of low quality product for a small quantity of high quality of the same product. The essence of preventing rib'a is behind making a contract where the clauses are clear unambiguous and the amount is defined at the time of transaction.
If the high risk option is the one which reflects buying a portion of a company's shares and facing the risk of loss as opposed to bonds, etc then the equity option should be taken.
HOWEVER, Within the equity options there will be certain companies that are more stable and others that are less stable. To invest in less stable companies can move a person from rib'a towards gambling. So there is a dilemma. I think the accepted option is to go for equities but only with those stable companies that exhibit the least risk for the investor.
Thanks for your clarification.
Re: Retirement account and buying car
Rebel bhia thank you for the advise and I was so glad to read the above line that you were concerned or at least you thought about me so I could start 401K and save some money for my old days 
I would be the happiest person on plannet earth IF you could have the same level of concern for me BUT NOT for 401K it should be how I could get more closer to Allah :swt: and be able to follow the sunnah of Prophet Muhammad :saw: in every aspect of my life. Thank you
Now about saving money and 401K I have my trust on my Allah :swt: I don’t have to save money for my old age or for anything. If I need something I will ask Allah :swt: instead of relying on 401K. The way things are going I am really happy and not worried about 401K. My family and kids are happy from me and I pray to Allah for myself, for you and for all the muslims that He (Allah) gives everyone the streangth to follow sunah in every aspects of our lives. Ameen.
Jazak Allah
Re: Retirement account and buying car
^ 
after all that explanation still you decide to fore go your 401(K)?
Arrey bhai - 401(K) is Allah’s way of taking care of you in your old age!
Re: Retirement account and buying car
^ acha janab...shukrun for the explantion. I will give it some thoughts. :)
Re: Retirement account and buying car
can anyone plz tell me whether having a 401K account is legal or not
what about interest payment in a new buying car ?is it allowed or leasing is a better option?
Asalam Walaikum
Dear brother of Germany.
It is a great bidd3h. The pious Sahbaha did not have.
Yours Truly,
Mufti Mirza Gulab Jamun
Re: Retirement account and buying car
if someone is making 48K, i.e. 4K/month **gross and saves 6% pretax in a 401K has a 3% employer match (fairly common) and has an avg gain of 7% each year each year the person has a **3% **salary increase if this person particpates in the 401K for **37 years they would have over a million dollars pre-tax in their retirement account :)
So what does the salary come out to be after 37 years when he started off with $4000 per month? Wouldn't that mean that when he saved that $1 million his salary is not $4000 anymore? So the calculation showed by brother Psyah is invalid then.
However, it would be interesting to see the savings growth compared with salary growth to see how it affects the 'net-cash-flow' per month.
Re: Retirement account and buying car
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Re: Retirement account and buying car
So what does the salary come out to be after 37 years when he started off with $4000 per month? Wouldn't that mean that when he saved that $1 million his salary is not $4000 anymore? So the calculation showed by brother Psyah is invalid then.
However, it would be interesting to see the savings growth compared with salary growth to see how it affects the 'net-cash-flow' per month.
Peace Captain1
To answer your question please see the spreadsheet in the previous post.
x= year x, MS_Yx = Monthly gross at Year x, MD_Yx = Monthly deposit pre-tax Year x, MEC_Yx = Monthly Employer contributions Year x, TMD_Tx = Total Monthly Depoist Year x.
TD_Yx = Total accumulated deposit pre-gains in year x.
CT+G_Yx = Cumulative Total + gains by end of Year x.
MS_>Tax = Monthly salary after tax based on (Column B - Column C) x 0.8 [assumed 20% Tax]
Yr_Zak_401K = Yearly zakat on the account
M_Zak_401K = Yearly zakat amount split evenly on a monthly basis
Net_CF_M_Yx = Net cash-flow monthly Year x,
MZ/MS_Yx = Ratio between Monthly zakat and monthly pre-zakat after tax salary expressed as a percentage.
As you can see for the first few years the zakat is quite insignificant but the proportion of zakat increases rapidly as the account gathers momentum.
After 25 years the salary has doubled, but the zakat proportion has increased over 40 fold.
Let's assume that salaries don't increase by 3% every year, then it is obvious that the maximum saving will be reached quite early due to zakat becoming harder and harder to pay out. Which proves my point that zakat does control and cap maximum savings, or encourages wealth to be dynamic rather than static.
Re: Retirement account and buying car
Peace Captain1
To answer your question please see the spreadsheet in the previous post. : : As you can see for the first few years the zakat is quite insignificant but the proportion of zakat increases rapidly as the account gathers momentum.
After 25 years the salary has doubled, but the zakat proportion has increased over 40 fold. Let's assume that salaries don't increase by 3% every year, then it is obvious that the maximum saving will be reached quite early due to zakat becoming harder and harder to pay out. Which proves my point that zakat does control and cap maximum savings, or encourages wealth to be dynamic rather than static.
Excellent, thank you for the spreadsheet. Now very slight modification, the M_Zak_401k would be zero for 1st year as the zakat will come into effect AFTER one year is completed on the savings, this would also bump up net-cash flow for month (not a whole lot but still it would be little more accurate).
I agree that if the salaries don't increase by 3% then the zakat will keep the savings under check, however then it wouldn't be realistic as we know salaries do increase by 3% or manytimes more. What we haven't taken into account is the inflation (cost of living) going up and might foce a cut from 401k to get more cash flow to meet the expenses.
Re: Retirement account and buying car
^ the whole point is that there is no ongoing compulsion to save at the same rate into 401(K). When you have saved enough to take care of your retirement, just stop putting more in there! Secondly, the zakat of 2.5% is NOT on all your wealth but the portion that is 'excess' of your needs. The amount you NEED for retirement does not constitute excess. Not saving anything for retirement is plain irresponsible and will lead to untol miseries to yourself as well as those who will then have to support you.
Re: Retirement account and buying car
^ the whole point is that there is no ongoing compulsion to save at the same rate into 401(K). When you have saved enough to take care of your retirement, just stop putting more in there! Secondly, the zakat of 2.5% is NOT on all your wealth but the portion that is 'excess' of your needs. The amount you NEED for retirement does not constitute excess. Not saving anything for retirement is plain irresponsible and will lead to untol miseries to yourself as well as those who will then have to support you.
says who? The "excess" amount is the money which is not in use when running your everyday life and stays put for one year.
Re: Retirement account and buying car
says who? The "excess" amount is the money which is not in use when running your everyday life and stays put for one year.
This says who? Why isn't saving for one's retirement not part of everyday life? If it is not done on a routine basis when else can you do it?
Re: Retirement account and buying car
This says who? Why isn't saving for one's retirement not part of everyday life? If it is not done on a routine basis when else can you do it?
Such savings are "invesment" in your future, not "present" hence are not expenses of everyday life today.
Re: Retirement account and buying car
This says who? Why isn't saving for one's retirement not part of everyday life? If it is not done on a routine basis when else can you do it?
Peace StirCrasy
USResident has already answered this. To emphasise this point, everyday life ... yes these days it is normal for people to save for retirement. However, the money is not being used on a daily basis. It is being stored away taken out of distributive action. It hinders the poor if people were to do this too much. So instead the investment account is seen as just that an additional luxury that needs to be catered for.
The saving is itself done on a routine basis but the money is not used on a routine basis.
Re: Retirement account and buying car
I have the same concern for anyone who reaches for advise that whichever aspect the advise is in that they do their best. whether be it sports, finances, job, family or afterlife.
the question was baout 401K and I answered 401K. As it has been shown by accounts of many scholars who are not calling this diliked or haram, it would be good for you to start it, heck even if it just means reducing your taxable income right now and using these proceeds later in life to do charity work
Re: Retirement account and buying car
Such savings are "invesment" in your future, not "present" hence are not expenses of everyday life today.
but they are expenses for everydaylife in the future.
the issue is that a few things are not known
1) what would be the value of the asset when you retire. it depends on your investments, economy and a host of other things.
2) what is the going tax rate when you retire and whattax bracketr are you in when youj retire ..and I mean retire as in reachign retirement age, whther or not you are still working
3) what is your income situation when you retire, what are the expenses which can depend on your health and other commitments.
4) how long will you live after you retire (yeah yeah I know one can die any moment but for planning sake u have to use some averages and thats what ppl use)
There is no real way for people to know the future and how much would be enough for them, its hardly a luxury from my own perspective.