Wednesday | 24 April 2024 | 15 Shawaal 1445

Fatwa Answer

Question ID: 1684 Category: Dealings and Transactions
401 or 403 Retirement Plan

Assalamoalaikum,

my question is out of 401 or 403 which Retirement Plan is in accordence of Islam. If you have some other suggestion please guide.

بسم اللہ الرحمٰن الرحیم

الجواب وباللہ التوفیق

The only difference between the 401 and 403 plans is that the 401 plan is for the employees of "for-profit "organizations and the 403 is for the employees of "non-profit" organizations. If there are no other differences, then according to the clarifications of the scholars, it is permissible according to the Shariah rules. 

However, if the company’s plan is mandatory, and the amount received later is more than your actual deposited money, then that extra amount of profit is permissible, without abomination “karahat”. 

But if the scheme is optional, then the profit on the deposited money should be given in charity. 

فقط واللہ اعلم واتم