Permissibility of (and Zakat on) 401k Plans & Other Securities
By Abdurrahman ibn Yusuf
To understand the Islamic ruling regarding of permissibility or impermissibility of a 401K plan, we first need to understand the different rulings regarding the various types of investment instruments that may be associated with a 401K Plan.
401k refers to an IRS Code that allows employers to set up retirement plans for their employees. This company-sponsored benefit allows employees to invest money from their paychecks into an investment vehicle on a pre-tax basis, meaning no taxes will be charged for investing until the employee decides to make a withdrawal from his or her plan at the age of 59 1/2. The employer can encourage the employee by also contributing to the plan by matching or partially matching the investment of each employee.