Salam to Everyone
A lot of people forget about their pension funds when it comes to zakat calculations. It is important to keep them in mind. A quote of the amount in the fund from your pension provider or your employer will be necessary to compute a genuine calculation.
Just thought I might remind you high income earners.
Thanks for the reminder.
I think this should have been in the 'Religious' Sec. But I s'one once told me that the pension fund is Harram. As the return is 'fixed' on the payments you make.
Basically it has annuity working on the backend. Which definately involves fixed interest.
Pension funds are not haraam, the investments that are made using pension funds are cause for concern. Usually company pensions invest in a diversified portfolio of equities and fixed income securities which are Islamically not allowed. But you can set up your own personal pensions and invest the fund in halal Islamic indices or commercial property funds.
Annuities have nothing to do with pension funds while contributions are being made. As soon as your retire the fund is made available to you and the holders of the fund recommend taking a fixed income as an annuity. The problem with an annuity is that upon your death the remaining fund is taken by the provider and is also invested in impermissable investments. Halal options are taking a lump sum component and doing something called 'income drawdown' in the UK which allows you to segment your fund into proportions of income that you take over a number of years.
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Pension funds are not haraam, the investments that are made using pension funds are cause for concern.
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Okay
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Usually company pensions invest in a diversified portfolio of equities and fixed income securities which are Islamically not allowed. But you can set up your own personal pensions and invest the fund in halal Islamic indices or commercial property funds.
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Set up your own personal pensions, never heard of that. How does that happen?
In the UK there are two ways of doing this. If you are an individual then you can set up something called a SIPP (Self Invested Personal Pension) from any Product Provider. If you are a small business then you can set up something called a SAS (Self Administered Scheme).
Both schemes have different tax liabilities but allow you to decide where to invest the money. If you are in the UK and are interested then get in touch with me through private messaging. I do this stuff for a living.
Ramzaan is just round the corner, so its a good time to understand various issues on how to calculate zakat. The issue of zakat on 401(k) plans was a bit ambiguous for me. Searching the web, I found two different scholars providing opinion on this topic. FYI and comments.
Q. I have a question about Zakat on 401K or IRA accounts. As you know these are retirement plans that many companies offer to their employees. Some time employee has to contribute to it to be eligible for any withdrawals or some time companies deposit money for their employees. Either case employees are not suppose to take money out of these accounts until the age of 59 and 1/2 years. But if you want to take money out of this account than you have to pay 10%penalty as well as taxes according to your current tax bracket. My question is do we need to include this amount when calculating Zakat amount or we don’t have to include it. and we should include these amounts how much? What I normally do I look at the balance and calculate net amount I could get if I make a withdrawal today and pay Zakat on that amount.
Is this correct? I appreciate if you answer my question before Ramadan ends. thank you very much.
A. The basic rule of Zakat is that it is due on the wealth that one owns and has the freedom to use. I think this 401K Account is similar to what is called “Provident Fund” in India and Pakistan. A committee of ‘Ulama’ under the leadership of Maulana Mujahidul-Islam Qasmi discussed this issue in great detail. In the light of the discussion of the scholars the following points can be presented:
The employee’s contribution to this fund is Zakatable if it is done by his/her own choice.
There is no Zakat due on these funds if they are collected compulsorily by the employers due to the company or government’s policies. Zakat will be due on these funds when they can be withdrawn.
There is no Zakat due on the company’s matching contributions until they can be withdrawn.
When these funds can be withdrawn, then if they reach the value of Nisab (3 ounces of gold or its cash value) and a year passes on them, then the Zakat (at the ration of 2.5 per cent) will be due.
The Zakat must be paid for the money that one receives and then voluntarily contributes to a retirement fund (such as IRA etc.), if it reaches the Nisab and after a period of one year.
(For more discussion on this subject one can consult, Majallah Fiqh Islami, Masa’il al-Zakat, volume 5, part 2, Qazi Publishers, New Delhi, 1994) Zakat for Mosque Construction
Pakistan Link
And
Question
DO WE HAVE TO PAY ZAKAT FOR 401-K COMPANY RETIREMENT PLAN EVEN THOUGH THE MONEY IS CONSIDERED NON TOUCHABLE OR THE 401-K MONEY IS TOO MUCH THAT I COULD NOT AFFORD TO PAY ZAKAT FROM MY SALARY.
Answer
al Hamdu li Allah wa al salatu ala Rasuli Allah,
Dear Br. Adnan,
The Zakatability of an asset depends on its amount (above Nisab), it ownership (whether you own it or not) and the passage of one lunar year (having at least Nisab at the end of the year as well as at its beginning).
If you own the funds in 401k, they are Zakatable. And if you can’t comfortably pay from other sources, the payment of due Zakah is deferred until you can pay from either other sources or from liquidation of the asset on which Zakah is due, but remember to calculate due Zakah every year and then pay it when you can do that because Zakah is a yearly (repetitive) obligation. Wa Allahu A’lam
Zakath on Stock and 401K
I am sure this topic must have been discussed before.If yes please point me to that.
If not can anyone explain if Zakath applied on Stock and 401k. If not then why not?
For F&B
For 401-K, see here
http://www.gupistan.com/forums/showthread.php?s=&threadid=149343
For stock, they are liquid assets, just like money.
This is confusing.
How is it stock different from having partnership in any business with someone and you agree to divide both losses or gains in the proportion of your contribution. It is just a business. We dont pay zakath on this kinda setup.Do we??
Talking of 401Ks.I never saw anyone paying Zakath on provident funds back home. This money isnot yours yet so why would one pay Zakath. You should pay Zakath once you get it?