Dear Scholars, this is regarding the loan that can be taken from my 401k account. we are all familiar with 401k which is a kind of savings where i contribute 5% of my salary and my employer also contributes 5%. so, for every paycheck, 10% of my salary is saved in 401k. These funds are managed by fund managers such as Fidelity. I have around 50K in this account and i am eligible to take a loan of 23K from this account. So, this is how it works.
* 23K will be given to me in a week time
* No tax for this 23K
* a one time fee of 50$ is charged for administration fee
Here is the interesting part of this loan.
* even though this is my own money, 4.25% of this money should be paid by me for every year which will be in turn added to my account itself. Govt have these kind of rules in order to help the people not to ruin their savings.
My question is – is this 4.25% which is paid to myself is interest or NOT?
Please clarify.
NOTE: My own sister’s family is in need of money desparately in order to settle their debt which is troubling them for couple of years. This money will be used to settle their debt.
In the Name of Allāh, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We require more details with regards to your 401(k) plan in order to advise you further. Kindly elaborate the details of the type of investments the 401(k) plan is in link with.
You may send your clarification to admin@daruliftaa.net
And Allah Ta‘āla Knows Best
Fahad Abdul Wahab
Student Darul Iftaa
USA
Checked and Approved by,
Mufti Ebrahim Desai