How to Make Your 401k Halal: A Complete Guide

Millions of Muslim Americans have 401k retirement accounts through their employers. The default investment options are almost always conventional mutual funds that include banks, insurance companies, and interest-bearing bonds. Here is how to navigate this challenge.

The Challenge of Default 401k Options

Most employer 401k plans offer a menu of conventional index funds. These typically include financial sector stocks, bonds with fixed interest, and REITs with potentially non-compliant income. Simply accepting the default option is not advisable for practicing Muslims.

Screening Your Options

Many 401k plans now offer dozens of fund choices. Review the fund prospectus for each option and look for funds that exclude financial sector stocks and bonds. Technology-focused funds and healthcare funds are often reasonable starting points.

Request a Halal Option

Some employers are responsive to requests for Islamic investment options. Email your HR or benefits department, citing the growing demand for ESG and faith-based investing options. Several 401k providers now offer dedicated Islamic funds as a plan option.

The Amana Funds

Amana Income Fund and Amana Growth Fund from Saturna Capital are specifically designed for Muslim investors and are available in some 401k plans. They screen for Sharia compliance and have a long track record.

Maximize Matching First

Even if perfect halal options are not available, strongly consider contributing enough to capture your employer match. The employer match provides an immediate 50-100% return on your contribution, which many scholars view as outweighing the difficulty of perfect compliance within a limited menu.