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Zakaah on 401k and SEP IRA

Fatwaa ID: 2249

Question:
Assalam o Alaikum Mufti sb want to ask you about Zaqat.
How to pay Zaqat on different retirement funds like 401 and SEP IRA
And second I bought an office for my practice how to pay Zaqat on it. Jazakallah Khair.

Answer:
In the Name of Allaah, the Most Gracious, the Most Merciful.
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

1) The zakaah liability of a retirement plan will depend on the structure and scheme of the plan. You have enquired about two: the 401k plan and the SEP IRA. The details are as follows:

a. A 401k retirement plan, which is voluntary, has two components: the employee’s contributions and the employer’s contributions. The employee’s contributions are all subject to zakaah. The employer’s contributions are either vested or unvested. The vested portion is subject to zakaah. The unvested portion is not subject to zakaah.
When discharging annual zakaah for one’s 401k plan, the future taxes and fees will not be deducted. The current total amount for each year will be considered.

b. An SEP IRA plan, also a voluntary plan, is a retirement plan wherein the employer contributes only; the employee does not contribute. However, the employee is always vested in immediately. Accordingly, the entire portfolio of the SEP IRA plan is subject to zakaah.
When discharging annual zakaah for one’s SEP IRA plan, the future taxes and fees will not be deducted. The current total amount for each year will be considered.

It is important to note that it is necessary to ensure that the investments in a 401k account or an SEP IRA plan are Shari’ah compliant. Shari’ah non-compliant accounts and plans are not permissible.

2) Your office space that you purchased for your practice is not subject to zakaah. You will not pay any zakaah on it.

And Allaah Ta’aala knows best.
Mufti Muajul I. Chowdhury
Darul Iftaa New York
https://askthemufti.us/

09/14/1445 AH – 03/25/2024 CE | AMG3-4483

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين


https://www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep

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