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Zakaah on 401k

Fatwaa ID: 994

Question:
Assalamualaikum.

Dear muftian kiraam

A musallee asked:

1) is Zakat paid for the amount of money we see in the 401k account or is it the accessible only amount (around 30% taxes and fees apply when withdrawing)

2) since I have already taken out the money from 401 k at my last job, should I pay for just the cash amount I have now or should I go back to the zakat dates of the previous years and pay zakat based on each years balances. Like (2.5% of 2020, 2.5% of 2021 balance etc. ).

Ajeeboo wa tujaroo

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

  1. 401k retirement plans, which are voluntary, have 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.
    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.
    One may discharge the zakaah of the above annually or backdate it for all the years upon withdrawal of the funds. The zakaah is necessary on it annually despite not having access to the funds because the investment is voluntary. The invester willingly locks up his funds knowing that he will not have access until retirement.
  2. When backdating, you will consider the balance/total of each year. You will thus pay 2.5% for 2022, 2.5% for 2021, etc.

It is important to note that it is necessary to ensure that the investments in a 401k account are Shari’ah compliant. Shari’ah non-compliant accounts are not permissible. If one unfortunately has one already, then purification will have to be done.

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

09/15/1444 AH – 04/06/2023 CE | AMG1-2973

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين


You may refer to the following resolution on 401k plans by the American Fiqh Academy: https://fiqhacademy.com/res11/

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