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How To Pay Zakat On 401k?
Asa, Dear sir,
I have confusion on zakat’s calculation on 401k pension account.
There is cofusion on it, we should pay it every year and some said, it should be paid once at age of maturity.
-what is proper way to calculate zakat on it, should it be every year or it is on the maturity (it will be avaiable at age of 60 years).
Thanks
Waqas
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4 Replies
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How To Pay Zakat On 401k?
updated 3 years, 9 months ago
3 Members
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4
Replies
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Very good question. My guess would be that since we pay Zakat on our monthly income, there is no need to pay Zakat on the retirement fund. Zakat on the amount of company contribution and profit earned from the investment can be paid once monthly income is drawn from the 401K during retirement; but only on the percentage equal to company contribution and profits earned.
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401k is treated just like pension. Zakat is paid at the rate of 10% on withdrawals for salaried retirees excluding any amount exempt by the state. If any portion of it is saved and becomes your asset then you pay the asset zakat on that portion in the future.
Please enter appropriate numbers in our Zakat Calculator after reading description for each box. You can put any 401k withdrawals in the pension box. When you reach the end, it will generate a statement showing you exactly what you owe after any applicable deductions, and what percentage was applied to what. It’s also a great way to learn the sharia of zakat.
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I think it needs to be mentioned that taxes paid on withdrawal offset the Zakat obligation. Normally in the US there is state and federal taxes on all retirement withdrawal and the percentage of taxes are much higher than 10‰.
It is a complicated topic. In California there is income tax on retirement income that will offset Zakat. On the other hand in Texas, there is no income tax, but government collects money by imposing much higher property tax than California. Now the property tax or perhaps sales tax is not an offset to zakat, just the income tax can be offset.
Please correct me if I am wrong.
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Our Zakat Calculator automatically takes care of it, and it’s not complicated. All state and federal income tax, sales tax, property tax, duties, etc. paid in that year can offset the zakat due. This is clearly marked in the Credits and Debits section of our Zakat Calculator.
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