Read More From Azzad’s White Paper Series
There’s nothing complicated about common investing techniques, and it usually doesn’t take much time to understand the basics. The biggest risk you face is not educating yourself about which investments may be able to help you achieve your financial goals. Use this resource to get started today.
Planning for retirement isn’t always easy. But there are concrete ways to help you make it reality—including taking advantage of a company retirement plan and investing on your own. For Shariah-sensitive investors, you’ll also need to think about finding halal investment options. This paper suggests practical steps to getting started.
There’s no denying the benefits of a college education: the ability to compete in today’s competitive job market, increased earning power, and expanded horizons. But these advantages come at a price—college is expensive. And yet, year after year, thousands of students graduate from college. So, how do they do it? And how do you do it in a halal way?
Think of investing like baking a cake that requires flour, eggs, and milk. Depending on how much of each ingredient you use, you can get very different outcomes. The same is true of your investments. Balancing a portfolio means combining different types of investments, including halal fixed income, in a recipe that is appropriate for you.
Investors in search of manageable income from real estate may want to consider a real estate investment trust, or REIT. A REIT is a company that buys, sells, develops, and manages real estate such as office buildings, apartment complexes, shopping malls, self-storage units, and housing developments. Successful REITs can offer investors high yields, current income, and moderate growth.
Drawing on the expertise of Scout Investments, which runs Azzad Asset Management’s international portfolio, this paper explains why international stocks should be a part of any diversified portfolio.
Many Shari’ah-sensitive investors wonder how the Islamic screening process might affect the performance of their portfolios. As this paper outlines, the answer lies in part with the sector allocations of traditional portfolios and their Islamically screened counterparts.
Riba is one of the most often misunderstood terms in Islamic finance. More education on this fundamental concept is not only necessary for the preservation of a halal livelihood; it is also important for the preservation of the proper practice of Islam. Riba is prohibited by the Qur’an, Sunnah (Prophetic example), and consensus of the scholarly community.
Azzad Asset Management actively avoids profiting from interest-based lending and from the trading of debt due to ethical and religious considerations. Learn more about the potential social harms of debt and interest and why it can make financial sense to steer clear of them.
Is the purification of impermissible assets in a savings vehicle like a 401(k) possible according to the tenets of Shariah? This paper outlines the steps that should be taken to embrace a halal strategy in one’s financial affairs, including the most important step of all—repentance from the previous action.
Global sukuk demand is expected to grow from $240 billion in 2012 to $421 billion by 2016. Learn more about sukuk and sukuk investing.
Initial public offerings, or IPOs, are a frequent topic of conversation among Azzad clients. But is it permissible to invest one? Get the halal perspective here.
A donor-advised fund can achieve many of the goals of private foundations without the legal, administrative and accounting costs.
A charitable lead trust is a way for taxpayers to leverage their generosity, producing tax savings that can be used to provide greater benefit to themselves, spouses, charities, and others. It can allow the grantor to support a charitable cause for a certain time period while leaving the remainder to an individual beneficiary, helping to provide an income stream to a favorite charity and ensure a gift to specified individuals.
A waqf is an endowment created under Islamic guidelines. Learn how this product can help you leave a legacy for generations to come.
A donor-advised fund can achieve many of the goals of private foundations without the legal, administrative and accounting costs. As a public charity, the program may also provide higher charitable contribution deduction limits. Your donor-advised fund also allows you to name multiple advisers and contributors so you can promote charitable giving in your family or business. Instead of giving directly to your favorite charity, you make an irrevocable contribution to your donor-advised fund account. You receive a tax deduction in the year you make your contribution and then can decide when and how much to give to your favorite charity. Meanwhile, Azzad invests and manages your donor-advised fund assets, potentially enabling them to grow and increase your giving power over time.
THREE REASONS FOR A DONOR-ADVISED FUND
- Immediate tax deduction can be taken
- No mandatory distribution requirement
- Professional investment management
WHAT IS A DONOR-ADVISED FUND?
A donor-advised fund (DAF) offers an easy way for a donor to make significant charitable gifts over a long period of time. A DAF is similar to a private foundation but requires less money, time, legal assistance, and administration to establish and maintain. A DAF also enjoys greater tax advantages than a private foundation.
Technically, a DAF is an agreement between a donor and a charity that gives the donor the right to advise the charity on how the donor’s contributions to the charity will be distributed to other charities. Contributions may be tax deductible in the year they are paid to the DAF if they are structured so that they are not considered earmarked for a particular distributee.
During life, a donor (or a donor’s designee) can make ongoing, nonbinding recommendations to the DAF as to how, when, and where grants from the fund should be made. Additionally, the donor can offer advice to the DAF regarding how contributions should be invested.
The donor may suggest that, upon death, grants be made to charities named in his or her will or other legal instrument such as a revocable living trust. Or, the donor may designate a surviving family member(s) to recommend fund distributions. However, the fund is not obligated to follow any of the donor’s suggestions–hence the name “donor-advised fund.”
As a practical matter, though, the DAF will generally follow a donor’s wishes. Grants to recipients are typically identified as being made from a specific donor’s account, but they can be made anonymously at the donor’s request. DAFs can be named to honor the donor or a particular family name.
DONOR-ADVISED FUNDS VS. FOUNDATIONS
Both private foundations and DAFs allow a person to take tax deductions now and decide later to whom to give.
A DAF usually receives contributions from many unrelated donors, while a private foundation is typically funded by one source (an individual, family, or corporation). While donors to a DAF may only offer advice regarding distributions, private foundations offer the donor exclusive control and direction over distributions and investments, an attractive feature to some philanthropists.
However, various legal restrictions imposed on private foundations are not imposed on DAFs, and the federal income tax treatment of a donation to a private foundation is less favorable than that afforded to a DAF. Because gifts to a DAF are considered gifts to a “public charity,” they may allow a greater income tax deduction than gifts to a private foundation.
Furthermore, private foundations are required to distribute a minimum of 5 percent of their assets each year. DAFs have no such minimum distribution requirement (though some DAFs follow the 5 percent rule voluntarily), and DAF donors may be allowed to let their accounts build up tax free for many years and be distributed only upon a specified date or upon the occurrence of a specified event.
A donor can generally take an immediate income tax deduction for charitable contributions of money or property to–or for the use of–a DAF if the donor itemizes deductions on his or her federal income tax return. The amount of the deduction depends on several factors, including the amount of the contribution, the type of property donated, and the donor’s adjusted gross income (AGI).
Generally, deductions are limited to 50 percent of the donor’s AGI. If the donor makes a gift of long-term capital gain property (such as appreciated stock that has been held for longer than one year), the deduction is limited to 30 percent of the donor’s AGI. The fair market value of the property on the date of the donation is used to determine the amount of the charitable deduction. Any amount that cannot be deducted in the current year can be carried over and deducted for up to five succeeding years.
It is easy to set up a DAF account. The donor first signs a letter of understanding with the administering organization, establishes an account, names the account, and recommends an investment strategy. Then the donor makes required minimum gifts of assets, which may include cash, real estate, stocks, mutual funds, closely held securities, and, in some instances, private and restricted securities, depending on the DAF. The required minimum donations vary from organization to organization, but are usually less than those required by private foundations. Contact your Azzad advisor today to learn more.
Note: Information contained in this publication is not intended to replace specific advice or recommendations by your investment advisor. It is not intended to provide tax, legal, insurance or investment advice, and nothing in this publication should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security.
Unless otherwise specified, you alone are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation.