I have a little off-topic question about stocks or bonds in 401k funds.
So some Muslims stay away from fixed/stable value options (bonds/money market funds etc.) because of interest and have all their money in volatile stocks.
When it is time to retire, the market crashes and their retirement fund evaporated in thin air.
What to do ?
Bonds in my humble opinion dont even adjust your money against the rate of inflation properly (correct me if I am wrong) which is around 3%. Investment in precious metal would give you more value of your money without risking your investment, than bonds
Jinx I am always appreciative of a discussion with differing viewpoints because we may learn from each other or atleast be aware of information we did not get exposed to earlier.
I completely agree that zakat is due on 401K funds, I just think that you can not make a call on value until you withdraw it. Because until then you can not use it.
I could be wrong, I admit. It just seems logical to me. But I do see the other point of view that it is possible to assign a value to it based on a point in time. My challenge is that while it's possible to calculate its value if I take certain actions ie withdraw it, I am not actually taking those actions
I could be wrong, I admit. It just seems logical to me. But I do see the other point of view that it is possible to assign a value to it based on a point in time. My challenge is that while it's possible to calculate its value if I take certain actions ie withdraw it, I am not actually taking those actions
Right now, if I want to take money out of my 401 K, I can only do it as a loan. That means that I have to make monthly payments to pay it back. Those monthly payments would cut into my monthly cash flow/expanses (on which zakat is not due). To me, this hardly sounds like that I currently "own" my 401K, at least not as liquid asset.
To me, 401 K is more like business investment or property investment. Both investments are exempted from zakat, till you take your investment out or sell the property and have spendable cash in your hand.
Jinx I am always appreciative of a discussion with differing viewpoints because we may learn from each other or atleast be aware of information we did not get exposed to earlier.
I completely agree that zakat is due on 401K funds, I just think that you can not make a call on value until you withdraw it. Because until then you can not use it.
I could be wrong, I admit. It just seems logical to me. But I do see the other point of view that it is possible to assign a value to it based on a point in time. My challenge is that while it's possible to calculate its value if I take certain actions ie withdraw it, I am not actually taking those actions
True. But my understanding is that while you are not withdrawing anything, but you are calculting what if you withdraw, what will be the value. Take it as a tool, perhaps. We can definitely determine the value of account using this method.
Right now, if I want to take money out of my 401 K, I can only do it as a loan. That means that I have to make monthly payments to pay it back. Those monthly payments would cut into my monthly cash flow/expanses (on which zakat is not due). To me, this hardly sounds like that I currently "own" my 401K, at least not as liquid asset.
To me, 401 K is more like business investment or property investment. Both investments are exempted from zakat, till you take your investment out or sell the property and have spendable cash in your hand.
seems like your 401K has different guidelines and laws to it. It is something to be verified from a scholar if zakat is actually due or not. Because from what you are saying, it is possible that in your case, zakat is not applicable on your 401K.
But it's a hypothetical what if on the worth of something today if you took certain actions today, the worth of it when you actually have access to it can be significantly less or more based on many factors. It's the question of possession, I don't have possession of it. I must do something to have possession of it. I am not taking that action.
a very long time ago my dada explained that one of the basic reasons behind giving zakat was to keep the economy "moving" so to speak.......to keep funds in circulation rather than allowing them to accumulate in the hands of the select few.
if we use this analogy then how do investments weigh in?
if you have a retirement fund, have you taken money out of circulation or contributed to the economy?
a very long time ago my dada explained that one of the basic reasons behind giving zakat was to keep the economy "moving" so to speak.......to keep funds in circulation** rather than allowing them to accumulate in the hands of the select few.
**if we use this analogy then how do investments weigh in?
if you have a retirement fund, have you taken money out of circulation or contributed to the economy?
so 401K or anyother investment is accumulation of the money and zakaat is on the wealth that did not circulate round the year but stayed and accumulated with us. 401K is part of your salary that goes in. The amount of money that your employer contribute to is also part of your salary because this come under a total compensation package.
Whatever you are saving in bank and in 401K is zakaat-able in my understanding.
Not sure if I understood correctly what the actual question was but if I understood it wrong, please correct me.
401K is defined contribution, if that is something that zakat should be paid on than I suppose it can be paid on defined benefit pensions as well, in each case you and your employer are contributing to it, whether it is as visible for defined benefit plans is a whole diff thing. For defined benefit aka traditional pension whether or not you took it that year it has a value that can be calculated, and even if it is a perpetuity and not lump sum it's cash value can be assessed. So the pensions that people get after retirement, are they zakat-able today if you have 20 years until retirement? Just because I can calculate its value in today's dollars does not mean zakat needs to be paid on it.
Muzna, as to funds on 401K, whether they are in stocks and this providing companies the ability to conduct business,innovate, grow and develop new products or whether they are in municipal bonds helping pay for public works projects they are contributing to the economy. Even someone's zero interest saving deposit is contributing to the economy. If someone stashes cash in a mattress or gold in a well, that is then out of circulation and not contributing.
Last part from KKF regarding loopholes to not pay zakat, not quite..it is a determination of what makes sense. Certain scholars have considered debt of mortgage (Islamic or otherwise) as exempt from wealth calculation, which I believe is incorrect too, however we don't walk around saying they are finding loopholes to collect zakat. (or loopholes to declare samosas haram or how women can work if they breast feed their coworkers) point being reasoning is not finding loopholes, but that's the mindset when the interpretation is less strict than people's opinion. It's like the lobster is haram debate TLK and I have had for over a decade. I am not willing to consider something haram unless it is noted as being haram, some declare it haram because they want to be extra cautious.
I will keep coming back to the point of paying it in your communities versus paying it earmarked for ones country of origin right. That is a key point I think because the resources available to people in need in US are limited if in doubt ask any refugee organization.
