Year-End Planning: Tax Strategies To Maximize Your Account

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OWAIZ DADABHOY: Thank you for joining us for our December webinar called Year End Planning Tax Strategies to Maximize Your Account. With me is my guest today, Yaser Ali. Yaser Ali is the owner and proprietor of Yaser Ali Law Group. He's the author of Estate Planning for the Muslim Client, and he specializes in wills and trusts based on Islamic principles. So he's going to go through a few slides on that.

And he is a past guest of ours on our on our webinar last year. And he was a guest of Monem Salam, who's a portfolio manager of a couple of our Amana Mutual Funds on Monem’s podcast called Halal Money Matters. We'll talk today about tax advantaged accounts and how you can benefit from these. And also estate planning, as I mentioned with our guest. We'll talk about wills, trust beneficiaries and charitable giving as well. 

The first topic we'll talk about is retirement accounts that you can open up with our company or through other companies. You may have rollovers that we'll discuss as well. So a Traditional IRA allows you to deduct on your taxes the amount of the contribution each year that you make to it. This year, in 2022, you're allowed to put in $6,000, and every year, just about every year, they do increase the amount that you can put in. So in 2023, it'll be $6,500. And for anybody that is 50 years and above, you can put an additional $1,000. It's called a catch up because many people have not started early enough. So you need to catch up and put in more money to increase your retirement account. You are able to start withdrawing your money at 59 and a half or later. If you take out money beforehand,  the agreement that you have with the government on this particular type of IRA is that you'll pay taxes on it and a penalty of 10% if you withdraw it beforehand. If you would draw it after 59 and a half, you just pay taxes on the dollars that you take out. 

The other option is the Roth IRA, which started many years ago. And this one has the same limits in terms of how much you can put in each year that I just talked about. The benefit of this one, the additional benefit is that you can withdraw what you put into it at any time without tax or penalty. And the reason you can take out any amount, you know, especially after 59 and a half, you can pull out everything, including what the gain is without any tax, is because you did not receive a tax deduction when you started the account. And when you put in subsequent amounts every year. So, for example, if you put in $6,000 into a Traditional IRA and you deducted on your taxes, you’re going to get some type of money back on your return. If you put $6,000 or less into a Roth IRA, you cannot deduct it. But the benefit is going to show up later on when you're withdrawing money.

Now, if you wanted to start up an employer plan or if you're included in one at the place that you work right now, you're able to put in $20,500 in 2022. And so you should maximize that. And that's why we're talking about this as year-end planning, because you're almost at your last two paychecks. And so, you know, if you have not put it in enough, you can ask your HR or 401(k) department at work to increase how much you put in for the remainder of the year to be able to get to the $20,500 if possible. Next year, it's going to be increased to $22,500. You know, a 401(k) can only be started by an employer. So if you are an individual, you don't have a 401(k) at work, you can't start a 401(k) and get this larger amount that you can put in, you'd have to start up an IRA account. And again, you can start up an IRA and a 401(k). So what are the choices on a 401(k)? You have the pretax or traditional option, or you can put in money into a Roth option. And in some cases, your employer's 401(k) might allow you to have both at the same time so you can have funding for each. And I'll talk about that in a little bit, why you might want to have both or one over the other. 

If you're an employer yourself, you're a business owner and you don't have a retirement account yet, we can talk to you about that. You can have a solo 401(k) if you're just an individual, you know, without any employees, you can start up a 401(k) for your employees or you can start up a SIMPLE IRA or even a SEP IRA. So you have three different options. And that’s something we can talk to you about. 

The next account I wanted to talk to you about that you should try to maximize if you have a high deductible health insurance plan is called the Health Savings Account. This was instituted by the government many years ago because the government knew that many people are not having great success at paying for their health expenses, especially as they get older. As you get older and you have, you know, high deductible health insurance plan, in the past, you just had to pay those fees without having a savings account. So they instituted this particular kind of account which offers the only triple tax advantage. Now, what I mean by triple tax advantage is, when you put in any type of contribution, you can get a tax deduction on that on your immediate year's taxes, and then the money that is invested grows tax free. So if you receive a dividend, capital gains, if you buy and sell a particular fund or stock, you will not pay any tax on that. And whenever you're withdrawing the money, you don't pay tax on the withdrawal just as long as it's for some type of medical cost that you have a receipt for that you can store in your file. So, for example, if you have medical costs like, you know, a cost that when you go in and you have to have a co-payment or you know, you haven't hit your deductible, so you're paying some amount, you can use that to pay for, you can use the health savings account to pay for that. The other thing that you can use it for is for vision or even for many types of dental cost as well.

In 2022, if you're just a non-married individual, you can put in up to $3,650 in same year, this year, $7,300, if you're a family. Next year will be increased to $3,850 and $7,750 respectively. And this particular one has a catch-up contribution as well. But it does not start at age 50 - it starts at age 55.

The main thing that you want to find out from your health insurance plan is whether you are qualified for a Health Savings Account. And if you don't have one at work, you can open one up at our company and, you know, start funding it with as little as $100. But again, the main part of this is that triple tax advantage. It allows you to save up for your future health costs. You don't lose it at the end of the year. It continues to grow for you. When you turn 65 years of age, you can also use it as a Traditional IRA. And what I mean by that is you can pull out any amount that you want to without having a receipt from any medical cost. You'll just pay tax at that point on withdrawals. But if you use it for any medical costs, you will never pay any tax on the withdrawals. 

Education savings accounts, there's something called the ESA, which is slightly different than a 529 plan. You've probably heard of the 529 plan, but you may not have heard of the Education Savings Account. This one is locked into the past, right, because they have never increased the amount from $2,000 per child per year. IRA accounts used to be $2,000 per year, and they've been increasing every year. Now you see that it's $6,000 and next year was $6,500. The Education Savings Account is kind of like the lost account out there, but Muslims use this particular account because it allows you to invest in a savings account for your children with tax benefits and invest in a Islamically principled way. You can't do that, unfortunately, on any 529 plan yet. So if you put in $2,000 per year for a child, you can do this for each child and you can do this, you know, for until they're 30 years of age. At that point, you have to use the account. So if you have a cost, let's say you've built up since your child was born, you got the Social Security number, you opened up the account. When the child turns 18, you start having education cost, you start pulling money out. You won't pay any tax on the withdrawals, even though you may have a substantial or moderate return on your investment that you had. So this is this is a good thing to have not only for the tax benefit, but also it allows you to move money aside into a separate account. And you know exactly what the purpose of this particular account is. I'll give you a quick example. If you start up this account, when you're when your child is born and you put in $83 a month, which is $1,000 a year. If you have a 7% annual return and average returns some years it's up, some years it's down, but the average is 7%. You'll end up with over $34,000, even though you've only put in $18,000. So the earlier that you start the the better the benefit can be because of compounding returns. 

Now, this is an example that we're going to take a few different lessons from. If you're age 25 and you start up, let's call it an IRA or even a 401(k), and you put in the limit for next year on an IRA $6,500. So let's say you put in something every month and you get to $6,500 in a particular year. And assuming a 7% rate of return. From age 25 to 65, you would have put in, you know, substantial amount of money, 65, let's see, $260,000 over those 40 years. You will. And within this calculation, you would end up with almost $1.4 million. Now, that’s a pretty easy way to get there because, you know, you can do this on a monthly basis and break down the $6,500 per month instead of at one time, and that would be about $550 a month. So if you look at that for payroll, that's $275 a payroll going into a 401(k) or into an IRA and you get to $1.4, almost $1.4 million. But if you wait just ten years and you say, you know, this is not important to me, right now, I just want to use my money. I just started working and you wait until you're 35, you're going to put in $65,000 less over those ten years, compared to the 25 year old. But that $65,000 is going to cost you almost half of your return because the money put in early on is going to grow for a longer period of time. And that's the power of getting started early in the power of compounding. If you wait until you’re age 45, you'll end up with $285,000 in this scenario. 

So what are the lessons here? One is get started early. The other is, you know, if you are 40, 35, 45 or even 50 plus, you know, you can't make up for lost time. But what you could do is look back at what your income was when you were 25. And it probably was a much less of an annual amount that you were receiving. So what you could do that's different than than a 25 year old or even a 35 year old is you could put in more money. Right. That's the other part of the equation. So you can look up retirement savings calculators and figure out how much you want to get to and put in the amount that you want each month and make it more than $550 a month. And you can still end up with a million or $2 million or $3 million based on your investment return, which is of course not guaranteed. You can look at what we've done in the past and kind of, you know, think about what may happen in the future just based on your own thoughts or reading up about it as well. But those you know, that's a way to get to a larger sum of money. Why do we want to get to a larger sum of money? Let's say we get to $1,000,000 and you pull out 7% per year just because that's the average amount. And so you want to pull out 7%. And you you know, you're pulling out $70,000 a year. If you're getting $1,500 or $1,600 dollars in Social Security income per month, that $70,000 additional amount for your retirement each year is going to be a substantial amount of money for you. But if you have $285,000 and you pull out $70,000 in a year, you're going to run out of money in a few years. But if you have a million and you pull out just the return each year, you should have the million dollars for as long as you live. And then you can pass that on to your spouse or to your heirs, your children. And you know, keep this basically like a personal endowment. 

The last lesson that we'll talk about here is let's say you had started this as a Traditional IRA or a traditional or pretax 401(k), where you were receiving the tax benefit now. If that was the case, when you're starting to pull this money out in this example, at 65, you have almost $1.4 million whatever amount that you pull out - let's call it $70,000 - you're going to pay tax as if that's income. That's not going to be capital gains tax. It's going to show up as your income. So you'll pay tax on $70,000. However, if you did not take the benefit in the past, you can take the benefit when you start withdrawing again. In this case, at age 65. So if you have a million or $1.4 million, whatever amount you take out will not be taxed at that time. So you get to make the choice: Do you want to take the tax benefit now or do you want to take it later? Or do you want to have two buckets of money where you're taking benefit now and taking benefit later on taxes?

What we do at Saturna Capital, which is home of the Amana Mutual Funds, are all of these types of accounts here. IRA accounts, as I mentioned, we start up retirement accounts for businesses, Health Savings Accounts, Education Accounts, minor accounts, brokerage accounts, financial planning services, trust and investment advisory services as well. And all of our four Amana Mutual funds do not have sales charges on the front end or the back end. All we will charge you is the the annual expense that we charge. And you can, of course, find those at 

The difference, you know, going back here for a quick second, the difference in putting in money on an annual basis versus on a monthly basis is that when you're putting in money on a monthly basis, you're putting in money into your investment that is at the cost of the investment that day. So if you do it once a year, you put in your all $6,000 or $20,500 in your 401(k), what's going to happen? You're going to buy the price that day. What if you're buying each year you're unlucky enough to buy at the high of the market. So what you want to do is dollar cost average and buy on a monthly basis instead of doing so annually. And it also hurts less, right? If you put in $550 a month into your IRA and get to $6,500 at the end of the year. That's much easier to do than putting in $6,000 or $6,500 at one time. So that's I think that is something that we should all do. And this is a year-end time to look at those kinds of options for yourself. So if you want to do that, you can contact us and we can help you to fill out an automatic contribution form for all of your accounts. 

We’re going to turn it over to Yaser Ali and he can talk about wills, estate planning, techniques and beneficiaries. Take it away, Yasser.

YASER ALI: All right. Thank you so much, bismillah. It's always great to join on these presentations with Saturna. I learn a lot Owaiz, each time and so appreciate the insight. I actually want to pivot a little bit, and so what I'd like to do is kind of segue  off of your comments and the tools and strategies that we can utilize for end of the year tax planning. And I'm going to come back to this slide and we'll go to the next one for now. 

So just given the timeliness of where we are today, so at the end of the year, everyone has the same goal. What can I do to save as much tax as possible? And funding these accounts is a great way to optimize and to minimize the taxes that you're going to owe this year. There are a couple other things that I want to touch upon, and then we'll loop back into how we tie them into the larger the conversation of wills and trusts and estate planning more generally. 

So in particular, as everybody knows, the tax code will provide you with a benefit when you give to charity. And so as Muslims, this is something that we want to take advantage of because mashallah our community is very generous.

And as we all know, the Quran is full of exhortations, encouraging us to be generous and to give to those that are in need and to build our institutions and so on and so forth. So the simplest thing you could do is cut a check to charity. Right. The more you give to charity, the less you're going to have to pay to the government. Not to say that your motivation is primarily tax driven, but it's a benefit that you can obtain when you give to charity. So the simplest thing I would say is you can give more to charity before the end of the year - that's going to lower your taxable income. 

Number two is a technique known as a donor advised fund, which we have here at the top of the screen. And the donor advised fund is a tool that allows you to donate this year into a bucket and then from there to subsequently give more in the future. So if you're coming up at the end of the year, you want to put in, say, $50,000 and then you give out of that $50,000 next year, the sadaqa that you were going to give anyways, right? So you basically are taking the deduction early and you put it into something akin to like a sadaqa jar. You know, when you have your kids at home and you tell them put money in the box, like you can go ahead and put money in the box called that donor advised fund and then you can donate out of that box to the specific ultimate charities next year or the year after or some combination thereof. So it's really nice in that way. If you particularly think that you're going to have a good income year, higher than an average year, you're thinking of retiring or whatever the case where this year might be, a year where you want to get as much deduction as you possibly can, this is an opportunity that you can do before the end of the year. Set up a donor advised fund, fund it, contribute to it, and then you can donate out of that fund in a subsequent year. 

So that's called a donor advised fund and that's accessible to everybody. That's something they can set up and fund. You can find it with cash, with stock, with appreciated assets, whatever the case may be.

Now, there's one tool that's not mentioned here, but that's kind of the next level up from a donor advised fund, and that's called a charitable lead trust. Okay, so this is a tool. We love them. At the end of the year. It's win win for everyone, for the charity, for the donor. It's an awesome tool. So what happens is just like a donor advised fund, you're going to set aside funds that you're going to donate in the future. And in essence, what you do is you tell the IRS, I promise to give, let's say, $100,000 to charity over the next five or ten years. Okay. And you know that you have zakat obligations. You have sadaqa obligations every year. You're giving $10, $15, $20,000 minimum no matter what, Even if there's a recession, whatever the case may be. You know, you have these zakat obligations and sadaqa that you are committed to giving. So you set up this trust and in exchange for the promise to give future donations, the IRS is going to give you a deduction this year. So you're going to get your deduction just this year, just like in the donor advised fund scenario. But the difference and the beauty here is that you can invest those funds. So all of what I always talked about earlier, which is the value of investing and compounding and growing, you still get to benefit. So you can invest those funds inside of a charitable trust and you can grow those funds. And then at the end of the term, so say we set it up for ten years and we promise to give away $100,000 at the end of ten years. You've given away $10K per year and you're still left with the $100,000 that you've given away might be $100,000, right? So you've given away a whole bunch of money. You got a big deduction upfront, the charity, especially if it's a masjid or if it's a charity where you will now lock in an income stream. So if you're on the board of a masjid or an organization that can continue to sort of guarantee every year, you're going to get $10,000, it's really, really effective. And then at the end you get back whatever you earned. So whatever growth, whatever assets there are, you're going to get back. So this has got a charitable lead trust, and this is kind of the next level up above donor advised fund. So if somebody who is giving fixed amounts every year, $10, $15, $20, $50,000, whatever the number is or more, this is a really, really good tool. All you have to be able to do is set it up this year, meaning you have to allocate those funds. So you have to obviously set up the trust and then you have to fund it with whatever amounts you're thinking of doing. And from there then you can take the deduction this year and donate over the course of the next five, seven, ten years, however much or 20 whatever, however much it's set up for. So that's something I think a lot of people aren't familiar with. Most people are familiar with donor advised funds, but this is the next phase and part of our goal is educating our community to utilize these sophisticated tools. Right? So the general public outside of the Muslim community, they're using a lot of these advanced tools to their advantage. And so we want to be able to help our community utilize them as well. 

In addition, here on this slide, there's a couple other things that are important. Perhaps at the end of the year, if you're coming up on a required minimum distribution. So if you were smart enough to invest early, now once you hit 72, you're subject to this required minimum distribution. And that's something you have to take or you're going to get a penalty. And so the government basically says that once you at 72, you've got to start taking a percentage out of that account every year. Now that's taxable money. And so a lot of people say, okay, how do we minimize taxes? We don't want to take that distribution, right? Because I'm still working, you know, alhamdulillah I’m in good condition. I'm still working or whatever the case may be. So one of the tools here is to allocate that required minimum distribution as a qualified distribution to charity. So you can do up to $100,000 as a qualified distribution to charity that by doing so, will not count as taxable income to you. So this is another great technique. Again, one of the things I love most about my practice is that we get to help our clients give a lot to charity, like, be smarter in the way that we give to charity. So what does that do? That helps build institutions, that helps build endowments, awaqf, right? Create self-sustaining organizations. Obviously, we've all we're all super, super familiar with, you know, masjid fundraisers and, you know, mashallah, they're great. But we want to get to a point where our organizations are self-sustaining. And in order to do that, we have to have endowments. In order to have endowments, we need to create these kind of larger gifts and smarter gifts. And these are some of the ways that we can do that, is to find endowments. So required minimum distributions is one way to allocate and not pay tax on the income that you would otherwise have to pay. Because of course you got a deduction when you funded the IRA or the or the 401(k). 

You can also name a charity as a beneficiary. So this is another thing. Now, this is obviously post-death, so this isn't going to help you save taxes in 2022. But if we're thinking about legacy and if we're thinking about sadaqa jariya, you know, the famous Hadith of the prophet (alaihi assalatu wassalam) that we all know, that when a person dies, their deeds are finished, like you don't have a chance to do any more good after you pass away. Except three things, and one of those three things is sadaqa jariya, a continuous charity. And so the more we can set that up and the more we can facilitate money going to charity, the better. And so the cap under the sharia is a third. So the maximum that you can allocate to charity upon your death. Now in your life, you can give it all to charity, right? I mean, most people aren't going to do that, but you could. Upon death, however, you're capped at a third. And so now this is another example of like when people come to see us to set up their estate plan, they say, I want to give to charity. And one of the things that you want to do in that scenario is be smart about the asset that's going to charity. So if somebody has, let’s say, $3 million and they want to give a third of it to charity and they have a $1 million in cash, $1 million in an IRA and $1 million in real estate, they’re not all the same. They’re not all equal. You think it’s $1 million in each bucket. But the reality is the IRA million, the $1 million that's in that taxable account is only going to come out to, let's call it $750 or $700 after tax. So if you donated your house or the cash you're going to, the charity is going to get that. But if you donate the IRA, the benefit is the charity is going to get the full million versus you or your children who are only going to receive the after-tax dollars. So, again, this is an idea of being really strategic. Now, if you take that million dollars in that example, we’re talking about several hundred thousand dollars of difference just by being strategic about, not the idea of doing charity, you already made your mind up, like you already settled on “I want to give a third to the masjid” or to whatever charities and nonprofits you care about, but how and which asset you allocate will make such a big difference in the tax result. So this just goes back to being thoughtful, being comprehensive, and being intelligent in the way we give. And I think that, you know, this is sometimes people get nervous about like, “I don't want to mess up my intention, like I'm doing sadaqa or zakat and I want it to be totally pure.” And that's great mashallah. You know, Allah accept, but at the same time, if you can give less to the government in the process and it's legal and you get a benefit in doing so, like we should take advantage of those things. Like we shouldn't shy away from receiving a benefit when it's accessible and available. But there's a whole world of advanced tools beyond what we typically do, which is write a check, raise your hand, kind of, you know, give out of emotion. But it's called planned giving. And it's really about, you know, thinking more strategically and thoughtfully about how we give. And part of that, like I said, will help to create self-sustaining organizations and help you pay less taxes. Right. So that's kind of the high level here about advanced planning techniques. The charitable stuff is all December 31st hard deadline. If you missed the deadline, there's no exceptions. So you want to end December 31st. You want to give yourself about ten days before that to make sure all of the gifts are in line and properly documented and such, especially if we have to set up a trust for you. So that's that's the key here on advanced estate planning techniques.

OWAIZ DADABHOY:  And before you go to the next slide, Yaser, you know, you should pick as people listening to this pick a date or some time period, maybe it’s April 15 tax time, maybe it's the end of the year. And take a look at your beneficiaries. A good time to do that right at one of those times, because otherwise you might forget it, not ever do it. So if you can get it, give an example of maybe a divorcee or a widow and what happens to accounts when you have when you have the wrong IRA beneficiary or beneficiary on any type of account, and it’s never been updated?

YASER ALI: Yeah. Yeah, totally. So so we were focused on charity, right? And we're talking about charity, but having the wrong beneficiary can be an absolute disaster. Most people think that and this is all it's all tied together, right? The whole area of estate planning has a lot of overlap, but most people think that if I set up a will, I draft my will, or if I make a trust and I say that I want my assets to go according to sharia, for instance, that that's going to cover everything. And the reality is that beneficiary designations will trump everything. And that's critical because there have been cases and there are reported cases where that's like the example you just gave, where a person is married and they name their spouse as the beneficiary, which is commonplace. That's sort of the norm and that's the default under federal law, on ERISA plans, they get divorced, they don't update the account. Right. And now there's this big court battle about who gets the IRA. Right. And so the children are fighting and the last thing we want is fighting. Right. And the last thing we want is court battles and lawyer fees and all of this, because then everybody loses, right? Like nobody is getting what they're supposed to get. And so this is really important that your beneficiaries are proper and that they are exactly what you want. And then I think that's probably a good segue way back to the previous slide, which is what you want is what the Quran tells us to do. Right. And that's the beauty here. Like as Muslims, this whole sort of presentation and the whole reason that you invest with a company like Saturna is because you're motivated by trying to ensure that your wealth is being invested in a sharia compliant manner. Right? And so like we as Muslims understand that we have restrictions about how we have to earn our wealth, right? So like everybody gets this, that I can’t earn my money in a haram way, even if I work really hard, right? Like if the income is haram, then it’s haram, right? Like I can’t work at a casino, right? Like, it’s just not going to work if the income is haram. We also understand, alhamdulillah, like we’re starting to understand that we have to invest our money in a sharia-compliant way. So if I sell bananas, which is totally halal and I got, you know, $10 from selling bananas for the day, now I want to go invest it. Okay? I want to again, make sure that that investment is sharia-compliant. And I need to not take the $10 to that casino and gamble it away. That would be haram. So we understand that point as well. Like, I need to make sure that, you know, all the frameworks about sharia compliant investing are present. There's a third part to this, which is the  part that I would say by and large, most Muslims in America are just not thinking about, and that's that upon your death, the wealth has to be distributed according to sharia as well. So a lot of people think, you know, like we have this mentality which is like, it's mine, I do whatever I want with it, right? And that's not true. So in your lifetime, you can do what you want with it. You can spend it how you want and you can invest it, you know, again, within the parameters of sharia, but you can donate it.

But upon your death,  Allah (subhanahu wa ta'ala), makes it very clear that your wealth has to be distributed according to the rules that he himself spells out. And this is a really interesting point, because the Quran throughout the Quran, it doesn't actually give you details about how to perform obligations. Right. So if you look through the Quran, for instance, you know how many rakaah that we just prayed. Right? Depending upon where you're listening to this webinar from, you're not going to find that it says four, and that Asr is four and that Fajr is two and Maghrib is three, and Isha is four. It doesn’t come in the Quaran. All it tells us is that we need to pray. But the rules of inheritance, Allah (subhanahu wa ta'ala), lays out himself. So if you want a reference, it's going to be the second verse here, which is Surah Nisaa chapter four verses 11 and 12. Really fascinating how detailed these rules are. There's nothing else in the Quran that is so detailed as the rules of inheritance. And so this hadith is pretty famous. The second one, that all of us have this obligation. You shouldn't have two nights pass without having a plan for what happens to your wealth. And I think it's really, really important, and maybe related to your whole point about look like we're we want to be smart, like Muslims want to be smart about how we grow our wealth. So you talked about, you know, if you invest at 25, you're going to have a lot better long term return at 70. If you come out at 72 to see what the total compounded amount is in the IRA or in that account versus, you know, someone who's not smart and is just kind of going day by day, just, you know, whatever. Right. And so that extends beyond death as well. So if we think and we plan for retirement and we think can we plan for everything else that exists around us, then it’s like it only makes sense to plan for that, which is inevitable. The single reality of life is that we're all going to die. And there's a really interesting point here in the Quran, which is, you know, everyone knows in the story of Musa and Al-Khidr that when they visited the town and the people were stingy and there was a wall and Al-Khidr rebuilt the wall. And so Musa, alaihissalam, he asks them, like, why don't you charge them like these people didn't even give us any food and you're doing free work for them. And the answer that he gives is that under the wall, there was a treasure for some orphans. The dad who died, he was smart and he was righteous. And he protected the wealth of his children, meaning he buried it. And so this is like the whole idea of estate planning is you worked really hard. Allah blessed you in your life with wealth. Now you have to protect it and make sure that it's transferred efficiently, with as little taxes as possible. Again, I'm going to harp on this point like we as a community pay too  much tax. So you want to transfer it in a way that is without the court system. Like you don't want to get stuck in probate, you don't want to get stuck with legal fees. You don't want to get stuck paying unnecessary taxes like that. That righteous man that's mentioned in Surah Al-Kahf, he, you know, knew that the people around him were going to take his wealth if it wasn't protected, so he buried it under a wall and built the wall and then Allah (subhanahu wa ta'ala) sent Musa and Al-Khidr to rebuild the wall and basically protect it until the orphans were old enough to take their wealth. So this is kind of like a discussion about the reason why we should be thinking about ensuring that our wealth passes according to sharia. Like for a lot of people, they're motivated by, you know, I just obviously we all, you know, as parents, alhamdulillah, we love our children. We want to make sure that our children are protected, which is great. We want to ensure family harmony. We want to ensure we avoid probate, which is the, you know, often messy court process. You want to ensure that your assets are protected and you want to minimize the amount of taxes that you pay both in life as well as in death or after death. Right. And so there's taxes that you have to pay in life. And there's also, in certain cases, taxes that are due upon death. All of those we want to try to mitigate and minimize to the greatest extent possible. 

Everyone is pretty familiar with a will. And like I said, when we think about our wealth and whatever Allah (subhanahu wa ta'ala) has blessed us with, we want to make sure that we're thinking about passing it on in a way that is consistent with sharia.

So the most basic way to do this is a will, right? It's not like a very fancy, complicated legal document. It's a piece of paper that says, upon my death, I want to name my brother Ahmed to be in charge. I want to name, you know, my sister Aisha, to be guardian of my minor children. Allah forbid if, you know, my wife and I were to pass and we have minor children, you want to name who is guardian. And then here's how I want my wealth distributed. Right. Like and you put in, you can put in the fractions. We have this free tool at you can use and there's a bunch of different opportunities and ways that you can create a basic will.  It's not something that most people, in my opinion, it's not sufficient for most people. And the reason I say this is because the first bullet, which is it doesn't help you avoid probate. So if you've got assets and you just have a will, great, it’s better than nothing. Don't get me wrong, it's not a don't do anything, but it doesn't help you avoid probate. It doesn't help you avoid taxes. If you don't have much, then maybe it's a good starting point. But the reality is it's probably not enough. If the goal is to ensure that we comply with sharia and also that we avoid probate. And so you want to try to make sure that you pick people you choose to administer things the way you want and the way that Allah (subhanahu wa ta'ala) tells us to do so, just like we're trying to do in our life. We want to make sure that we apply those same rules post-death. 

So the better solution then is a trust. And the trust, you know, it scares people that like, oh, like it's something for really rich people or it's something for, you know, only people that are really old or millionaires or whatever the case may be. And the reality is, like nowadays it's something that almost every Muslim couple or even Muslim individual who has accumulated some amount of wealth, especially if you bought a house, if you got some, you know, a few hundred thousand dollars of net worth between, you know, savings and investment accounts, retirement accounts, real estate, you definitely will want to consider a trust. And think of it like a bucket. Put everything inside the bucket, you continue to manage that bucket while you're alive, and then you pick people to manage it after your death and to administer it. And their job is to follow the rules of the trust. So it's a legally binding obligation on the trustee to administer and distribute the assets according to the rules. And those rules, like I said, we can name them according to sharia such that now it's like obviously an ethical duty that the person has - the administrator, the trustee - but also a legally binding duty under the rules of the trust. So it's essentially a contract that you make. And so we really think these are recommended if you have minor children. You know, one of the things again, if you look at the first page of Surah Al-Nisa, it's really, really interesting. The Quran talks about, I mean, everything is laid out. And so the Quran talks about, you know, not giving foolish people wealth. Your son turns 18 and he stands to inherit $1,000,000, you worked really hard. And, you know, mashallah, this child is going to get $1,000,000 at 18 if you die. And he's still young. Is that a good result? Right? Is a question we have to ask. Is that going to be bad for his work ethic? Is that going to be bad for their character development for their tarbiya, right? And so the Quran actually talks about test the orphan. Test them, give them a little bit of money, see what kind of financial acuity they have. And if you find that they've reached this this concept of rushd, like if they're mentally mature and they're sound and they make good judgments, then give them their wealth. Otherwise the trustee will continue to manage the wealth for them until they reach that kind of maturity. So really, the idea here is the trust is a tool and a technique, you know, a conventional tool. But we can overlay all of our Islamic principles into that trust. And that's what makes it so flexible and so beautiful is that you have the ability to kind of build it out to account for your unique situation and circumstance. And it's all private. So nobody is going to interfere. Nobody's going to be involved. Now, again, here we can overlay the sadaqa jariya. So again, if you're someone who is contributing annually and you want to continue to contribute, you can do so upon your death inside of the trust. So the trust can have an instruction that says upon my death, you know, I want to give for instance, there's a discretionary portion. You might want to give some gifts to your grandchildren, right? That's allowed under the one third, will see a share of sharia. You might also want to give some sadaqa jariya, some fidyah, some different, you know, things that you missed, obligations in your lifetime. All those things can be accounted for inside of a trust. So it's really a good it's really a good tool. Here, Owaiz, the cost here for the basic plan is probably more the cost of like a will based plan, which if you go to a most attorneys, you're probably going to find that initial kind of cost of setting up a will, a power of attorney, and a health care directive is more in line around like a $1,000 - $1,500. A trust, typically, if you go to attorneys in our in our office, this is true. And I'm sure that if you consulted with various attorneys, you're going to see that the trusts typically do cost a few thousand dollars to set up. So usually the base fee here is going to be $3,000 or $4,000 in most cases. And depending upon complexity, that number could rise. But the reality is the probate cost on the back end would normally far exceed that amount. So you set it up in advance and you kind of like make things easy for everyone else and at the same time concurrently fulfill the religious obligations that you have.

OWAIZ DADABHOY: And it's an act of worship as well, right? I mean, you're doing something that is mandated. So the cost here should not be looked at as something like why am I having to spend money on this thing? Right. It's really it's an act of worship as well. So if you look at it with that intention, you know, hopefully it'll be rewarded as well.

The other thing is Saturna does also have a trust company called Saturna Trust Company based out of Nevada. And so we can act as administrators as well on your trust. So you can name us as corporate trustee if you would like. So, you know, that's something you can talk to us about as well.

YASER ALI: That's a really good point. I mean, one of the questions we get asked the most is like, who should be the trustee, right? Like who, once I'm not there, who do I trust to take care of all of this? And also, even if I trust, say, my brother, that's a lot of work, right? He's got a job, he's got kids, he's got his own life. Now he's got to take on all of this responsibility? So if you can play that role, that's definitely good. There's a lot of people that I think that will be beneficial for. We didn't talk on that side. There was a mention of, you know, more advanced techniques. And again, in this webinar, we're just kind of trying to make introductions of concepts, but there's also a whole world of advanced trusts. So we talked about charitable trusts and charitable lead trusts and charitable remainder trusts. There's also asset protection trusts. There's also trusts that are designed for tax savings. That’s also where the corporate trustee can be very useful is a lot of people are motivated by a desire to protect their assets from potential lawsuits. This isn't like, again, we're not trying to dive into a world of like, you know, hiding things and fraud and stuff. But there are legal tools you can utilize to protect your assets from future potential creditors. And if you, as a Muslim especially tried best to avoid dealing with interest and riba, and now you have these assets that you've acquired that are free and clear, well, those are attractive assets to potential lawsuit, plaintiffs attorney, right? And so some of these advanced trusts allow you to protect your assets so that in the event, Allah forbid, of a malpractice lawsuit or, you know, a car accident or slip and fall or whatever the case may be, any lawsuit from any potential creditor, those assets will be protected. And so those are called irrevocable trusts. The first trusts we were talking about were revocable. So the next tier up is irrevocable. And oftentimes in those trust, you can't be the trustee. So you need to have somebody else serve as the trustee. That's what provides you with the protection. 

OWAIZ DADABHOY:  Yeah. So I think I think what we can do here, Yaser, so just to recap, use tax advantaged accounts to your benefit. Yaser talked a lot about, you know, the benefit of trying to reduce your taxes and how to do that. We talked about different kinds of trusts. We talked about charitable donations, meaning in a tax efficient manner. For example, you know, transferring your required minimum distribution to a charity and not having to pay tax on that, a donor advised fund, a charitable lead trust as well. And we talked about having, you know, monthly contributions to dollar cost average into your investment versus an annual funding, and it makes it easier on you as well. So if you do open up, let's say, a new Health Savings Account to get that triple tax advantage, what should you invest in? You can go to and on that page, on the front page you go to the Fund Selector, answer six or seven questions and it'll give you a recommendation or some guidance on what funds to pick based on your timeline. Right? You can think about your timeline, your age, and then it'll talk about your risk and where you might fit in. Rollovers - a lot of people do have rollovers these days, and I think I very briefly talked about that. So I'll just mention here that there are some things that you should take a look at about rollovers, IRA distributions made before age 59 a half are subject to penalty. So, for example, if you have a Roth 401(k), you have to wait until 59 and a half versus a Roth IRA. You can pull out the money before that, the part that you put in. And if you have an old employer 401(k) somewhere, let us know. We can easily help you with that and keep all of your money in one place instead of having, you know, three different former employers hold your 401(k) and lose track of them and maybe they're not even based on Islamic principles. The final page here just gives you our contact information. or phone number. That's my contact information and my email and my team as well. So again, thank you everyone. We will see you next time.

YASER ALI: Assalamu alaikum.

NARRATOR: Please consider an investment’s objectives, risks, charges and expenses carefully before investing. To obtain this and other important information, which you should carefully consider before investing, about the Amana Funds in a free prospectus or summary prospectus, please visit or call 1-800-728-8762.

Amana Webinar Disclosure 20221207
Amana Webinar Disclosure 20221207 - Rollovers

While there are no account or transfer fees for IRA accounts invested in Saturna’s affiliated mutual funds, ongoing investments in mutual funds are subject to expenses.  See a fund’s prospectus for further details.  Trades in a brokerage account are subject to a commission schedule.  Wire transfers out of the account and expedited shipping of proceeds checks may incur fees when these services are used.

IRA distributions before age 59½ may be subject to a 10% penalty.  IRA distributions may be taxable.

Rollovers are not right for everyone and other options may be available.  Some retirement plans allow you to hold your assets in the account until you need them.  You should check with your previous plan administrator about any fees they may charge.  It is important to carefully consider your available options, including any fees you might incur, before choosing an IRA rollover.

This material is for general information only and is not a research report or commentary on any investment products offered by Saturna Capital. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal.

We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This podcast is prepared based on information Saturna Capital deems reliable; however, Saturna Capital does not warrant the accuracy or completeness of the information. Investors should consult with a financial adviser prior to making an investment decision. The views and information discussed in this commentary are at a specific point in time, are subject to change, and may not reflect the views of the firm as a whole.

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