Is there zakat on 401K?

[psyah]

Re: Is there zakat on 401K?

@Captain1

From the $100k the 10% is deducted upfront (when withdrawn) by most brokerage houses and 20% is to be paid later on. Basically you can’t avoid the 30% penalty, so the $100k is not yours, effectively you only own $70k so you can’t be paying zakat on the money you don’t really own.

Peace Captain1

The fact that the money is not accessible does not mean that it does not “effectively” belong to the person. You have failed to see what I was saying … Say a person has $4000 in his current account and $100k in his 401k. If this has been the case for 1 year then the zakat to pay is $100 + $2500 which gives a total of $2600 to be given in zakat. This will come out of the current account and the 401k remains untouched.

On the other hand if the person has only $2400 in the current account and $100k in the 401k for a year then the zakat to pay is $60 + $2500 = $2560 resulting in $160 to be taken from the 401k. To do this the money would need to be accessed so the penalty applies, but the amount of zakat does not come down because for the year duration that money was being held.

The only way the zakatable amount will be reduced is if before the 1 year is up the 401k is accessed and the charge applies then the remainder amount is zakatable only because only that amount has been in the account for the 1 year period. It is not important whether the money is “effectively” the owners or not. The fact that it is kept for 1 year means the zakat is applied on it.