1] Permissibility of and Zakat on 401k plan &other securities

1]
Question:
Permissibility of and Zakat on 401k plan
& other securities
Answer:
In the name of Allah, the Inspirer of truth
Permissibility of and Zakat on 401k plan
& other securities
The 401K Plan
401k refers to an IRS Code that allows employers to set up retirement
plans fortheir employees. This company-sponsored benefit allows
employees to invest money from theirpaychecks into an investment
vehicle on a pre-tax basis, meaning no taxes will be charged for
investing until the employee decides to makea withdrawal from his or
her plan at the age of 59 1/2. The employer can encourage the employee
by also contributing to theplan by matching or partially matching the
investment of each employee. All of money invested (up to a certain
predefined limit), along with any investment or matching from the
employer, is put into an account that is invested into funds (i.e.
money market, fixed income, or equity), as chosen by the employee from
a list of funds offered by the company.
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.
Individual Retirement Account (IRA)
An Individual Retirement Account is traditionally a retirement plan
where individuals can deposit funds into an account that will earn
interest with the goal of augmenting an individual�s retirement
savings. An IRA is different than a 401k because an IRA earns a
fixed-rate of interest. It is not an investment so it does not have
the ability to earn a higher rate of return in a lucrative market.
Conversely, it is safe during periods of market correction.
It is very clear that investing in such an IRA is impermissible since
it is not considered an investment (hence no chance of loss on
invested capital). It is similar to an interest bearing deposit such
as a saving account.
Note: However, an IRA in many cases (of recent) can also be set up
with an institution like a broker (called brokerage IRAs) to invest in
lawful stocks at one�s own discretion. This could be a good lawful
investment option if the stocks one invests in meet the criteria
highlighted below.
Mutual Funds
A Mutual Fund is an investment entity, usually a corporation that
sells shares to investors, usuallyindividuals, in exchange for a
portion of the Fund�sinvestment portfolio. Different funds are
designed to meet the requirements of various types of investors. For
example, fixed income / bond funds are available for investors seeking
moderate returns and low risk and equity / stock funds are accessible
for those who are willing to accept more risk exchangefor potentially
higher returns.
Investing in Mutual Funds is permissible if one restricts his or
herself to investing only in equity / stock funds whose portfolios
consist of lawfulcompanies. Investing into fixed income / bond funds
is impermissible since the returns are derived from interest-bearing
securities.
Money Market Fund
A Money Market Fund is a mutual fund that invests in short-term
interest bearing securities and sometimes allows its investors to have
a debit card associated with it andwrite checks against their
accounts. Since the investments are made intoshort-term securities
(which typically mature within one year), these funds are very
low-risk. Investing in Money Market Funds is impermissible since the
pool of investments consists of interest-bearing assets.
Bonds, Bills and Notes
These are debt obligationsunder which the borrower,typically a
corporation of governmental entity, agrees to make specified payments
of interest for the money it borrows (the �face value� or principal).
For example, a corporationmay issue a bond which will mature in 5
years witha face value of $1,000 and promise to make annual interest
payments of 10% per year. In this case, the bondholder will earn $100a
year for five years and after the fifth year will be given back his or
her initialinvestment of $1,000 as long as the corporation does not
default. The interest / expected return of each of a bond depends on
the degree of risk, which determined by independent ratings agencies.
Bonds issued by governmental entities typically have a lower expected
return than those issued by corporations since the chances of
governmental entities defaulting are smaller.
Investing in Bonds is also impermissible since they are essentially
loans that promise to pay back the face value plus interest.
Certificate of Deposit (CD)
A Certificate of Deposit is a savings certificate at various
denominations issued primarily by commercial banks where the holder
receives interest at a specified rate upon maturity. :->

Zakat on Platinum Jewelry

Question:
Zakat has to be paid if one possesses gold or silver. Does it have to
be paid if one possesses platinum jewelry, pearls or diamonds? How is
zakat calculated in this case?
Answer:
In the Name of Allah, Most Merciful & Compassionate
Zakat isn�t due on platinum jewelry. In termsof jewelry, Zakat is only
obligatory on gold and silver .

Zakat on Private Car

Question:
I own a private car for my private use. Do I haveto pay Zakat on it?
Answer:
In the Name of Allah, Most Merciful & Compassionate
No, zakat is not due on one�s personal needs, suchas one�s house, car,
and other belongings.

Distributing Zakat Through An Agent

Question:
I have sent my zakat for the year to my father in-law to distribute
within Pakistan on my behalf, but I have a concern as to how far
myresponsibilities lie on following up where this money goes. My
father in-law distributes this money to people he knows as genuinely
poorand also to Islamic madrasas. I don't want to question him in
great detail as he may think I am questioning my trustin him. However,
I believe he did not give all the money away. He is in great debt
which my husband and I will take it on ourselves to pay off, but I do
not wishmy zakat money to go tohim, as I believe my husband and I
should pay this and will pay it insha'Allah.
Answer:
In the name of Allah, Most Compassionate, Most Merciful,
There are certain points worth considering here:
1) Paying Zakat through an agent (wakil) is permitted. It is
permissibleto appoint a person or an organization to distribute Zakat
on one's behalf uponthe eligible and worthy recipients. (See: Radd
al-Muhtar ala al-Durr, 2/268-269)
However, in doing so, one should keep two things in mind:
Firstly, one should have full trust and confidence that the agent will
distribute the Zakat to only worthy recipients, and not misuse it in
any way.
Secondly, if the agent doesnot distribute the Zakat upon worthy
recipients, then Zakat will not be regarded as fulfilled, henceit will
remain an obligation on the Zakat-payer. Zakat will only be considered
fulfilled when the agent utilizes and distributes it on worthy
recipients.
2) Zakat cannot be given to one's parents, grandparents. Similarly,
one's children, grandchildren. However, it is permitted to give Zakat
money to one's father in-law and mother in-law, provided they are
worthy recipients. (Radd al-Muhtar, 2/346)
3) If one gives Zakat to an agent, it will be permitted for that agent
to distributethe Zakat on his parents, relatives and any other person
(provided he/she isworthy of receiving Zakat).However, it will not be
permitted for that agent to use Zakat for his personal benefit.
Imam al-Haskafi (Allah have mercy on him) states:
"It is permissible for an agent to give Zakat wealthto his poor son
and poor wife but not use it himself,unless if the Zakat-payer asked
him to use the Zakatwealth in any manner he wishes." (See: Radd
al-Muhtar ala al-Durr al-Mukhtar, 2/269)
The meaning of this is thatnormally an agent cannot use Zakat wealth
for his own personal benefit. However, if the one giving Zakat and
appointing him an agent said to him:"Distribute this Zakat wealth in
any manner you wish" or "Give it to whomever you desire", then in such
a case, it will be permitted for that agent to use the Zakat wealth
for his personal needs.
Keeping the above three points in mind; we come to your specific question.
You state that you have given your Zakat to your father in-law in
order for itto be distributed upon worthy recipients. Thus, in light
of point number one, if you had full trust and confidence that he
would use and distribute the Zakat in a proper manner, then there is
nothing to worry about.
However, if this is not the case, and you fear that dueto him being
poor and in debt he may use the Zakathimself, then there are two
scenarios here.
We learnt in point numbertwo that one may give Zakat to one's father
in-law; hence if he used it for his personal benefit, your Zakat would
have been fulfilled. However, the problem here is that which was
outlined in point number three, in that an agent cannot use Zakat for
his personal benefit unless the Zakat-payer gives him permission to
distribute the Zakat in any manner he wishes and desires.
Thus, in conclusion, if you had full trust and confidence that your
father in-law would distribute Zakat in a proper manner, or you
thought that he may use ithimself, as he is a worthy recipient, and
you also said to him to use the Zakat wealth in any manner he wished,
then inall of these cases, your Zakat is valid and fulfilled.
However, if you have doubt in his distribution, and you did not give
him permission to distribute your Zakat in any manner he wished and
desired, then you should re-pay your Zakat.
And Allah knows best