What is the ruling on the Retirement Saving Plan (RRSP in Canada) in which you put some money every month and get tax benefit at the end of the year. Normally you don’t touch that money until you retire. So beside Gold and any cash that you own for the whole year, do you also pay Zakaat on RRSP as well? What about if your employer matches your contribution in RRSP, do you also have to pay Zakaat on that amount as well, though its not accessible for with drawl until you leave the company.
Re: Zakaat on Retirement Plan
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Re: Zakaat on Retirement Plan
Its considered your saving so I guess you have to pay zakat.
about employee matching, if its conditional (they will match but money is only yours if you stay in the company for at lest 5 years) then you may wait but have to pay zakat of all previous years once you cross 5 years.
Re: Zakaat on Retirement Plan
Thanks. Condition for employer's matching is once you leave the company only then you can touch the money. So if you leave it today, its all yours and you can withdraw it. It is not like the 'Options' you get. Its RRSP/401K matching.
So if I look back at my portfolio on let say Aug 11 2009 and compare it with same date this year, that is the amount I have to divide with 40 to get 2.5%. Right. Because I carried this amount a minimum throughout the year. Though the amount is every changing because its not cash but mutual funds purchased from cash.
Re: Zakaat on Retirement Plan
Peace smooth_guy
f you are putting away this money into a 'stocks an shares' based pot, then it will be treated as investment, but only if the risk of losing is present, from memory ...wallahu'alim
Re: Zakaat on Retirement Plan
Thanks dear. Ofcourse it is investment, but its an option to have a certain % deducted from the income automatically and put into an RRSP/401K account for your retirement with an intention that you will start withdrawing on your retirement or age 65 whichever comes first. The money is not just sit there but the finance company your employer has deal with will invest it in certain mutual funds of your choice. So it will keep growing (hopefully) purely based on profit and loss.
It is different than the investment you do in your 'take home' income, in which you open a self directed investment account and trade in NYSE etc.
What is the threshold? Let say your wife has more than 7 tola gold and then you have, let say 5 tola value (equal amount in dollars) in RRSP/401. Will the whole amount be calculated and divided by 40 to get the zakat amount?
Re: Zakaat on Retirement Plan
You dont kow the value of the 401k until u retire and start withdrawing, its money sitting there but not available to you, u dont know what it will gain, and u dont know what tax you will pay when you do retire. there has to be more thought put into zakat on 401Ks
Re: Zakaat on Retirement Plan
If the money cannot be touched till some time later, I think, it is not 'in posession' of the person to be spent.
And logically zakat may not be applicable on it. Not sure.
Re: Zakaat on Retirement Plan
You dont kow the value of the 401k until u retire and start withdrawing, its money sitting there but not available to you, u dont know what it will gain, and u dont know what tax you will pay when you do retire. there has to be more thought put into zakat on 401Ks
If for example the sum you put away into your 401K added to your savings in ur bank account is equal to $400/- then your Zakat is $10/- for that year,
or if it is $4000/- then Zakat will be $100/-
Re: Zakaat on Retirement Plan
Thanks. I couldn’t find much on RRSP so I tried 401K after reading above comments. Here are two answers by scholars.
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Zakāt on 401k plans
Given that one cannot withdraw from 401K plans until one is 59.5 years old without facing a penalty, the question comes up as to how and when zakāt needs to be paid on this.
Since lawful 401K plans are considered business investments, the money invested does not come under the definition of being a debt and thus zakāt is necessary each year as long as the total amount (along with any other savings a person has, minus any debts) meets the zakāt quantum [nisāb] which is approximately $140. One is obliged to pay 2.5 percent on the total value of one�s investments (which includes one�s own investment, along with any amount added by one�s employer that has vested *, and any gain or profits that have since been accumulated. In other words the zakātable amount will be the amount a person would consider his or hers at that time even if he was to leave his employment.
For instance, if a person�s total personal investments in his or her 401K plan are $5,000.00 along with $2,500.00 matched by the employer, then the zakāt will be 2.5% of $7,500.00 which is $187.50 for that year.
If he or she has an additional $2,500.00 in other zakātable assets like cash in hand or inventory, etc. then the total zakātable income is $10,000.00, hence, his zakāt will be $250.00 for that year.
Any penalty amount or taxes that one would have to pay if they did a premature withdrawal of their investment are not exempted from the total zakātable income each year, unless a person makes such a withdrawal or cancels his or her plan. In this case he or she would only pay zakāt on the amount left on the day the zakāt becomes due after deducting any penalties or taxes.
And Allah knows best.
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Shedding light on the issue of “Zakah on 401K Account”, we’d like to cite the following Fatwa issued by Dr. Muzammil H. Siddiqi, former President of the Islamic Society of North America:
"The basic rule of Zakah 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 Muslim scholars 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:
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The employee’s contribution to this fund is Zakatable if it is done by his/her own choice.
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There is no Zakah due on these funds if they are collected compulsorily by the employers due to the company or government’s policies. Zakah will be due on these funds when they can be withdrawn.
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There is no Zakah due on the company’s matching contributions until they can be withdrawn.
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When these funds can be withdrawn, then if they reach the value of nisab and a year passes on them, then the Zakah (at the ration of 2.5 per cent) will be due.
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The Zakah 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.
It was also discussed on gupshup once, I found the link through google 
Re: Zakaat on Retirement Plan
If for example the sum you put away into your 401K added to your savings in ur bank account is equal to $400/- then your Zakat is $10/- for that year,
or if it is $4000/- then Zakat will be $100/-
but the value of the amount is not what you can use, if i have 1000 in my 401k account and I take it out today, after tax and penalty it will not be $1000. second, the amount is invested, values go up and down, many people lost a big chunk when economy went south, last, lets assume I just put cash there and dont invest it, it just sits there, when i withdraw it upon retirement, I have no idea what the tax rate will be then, I could be paying 50% in taxes, i can be paying 30% in taxes, its decades away, so no idea.
Re: Zakaat on Retirement Plan
Since this money is not in your possession you cannot take out zakat from it , administrators of your plans and govt. will not let you do so. Once you retire and start to withdraw from 401k then you will be able to pay zakat on it . Now question will be how much do I pay at that time ? I pay 2.5 percent per year for each year the money has been in 401 K account or just for the year I start withdrawing from it ?
Someone can say money and gold in your safe deposit is not in your possession will you not pay zakat on it ?
My answer is that in this case you are not bound by law and the bank to not withdraw from your safe deposit. But in case of 401K you are bound by law and plan administrator to not touch the money till you retire.
Re: Zakaat on Retirement Plan
^ I think we've had similar discussions in the past. Gold and silver and business assets are different to money. The money needs to be possessed for a year at least to be zakatable, but I do not believe this is the case with the examples above.
The better analogy with the 401K accounts would be with a business. The business has a set value in assets but it grows and the zakatable amount is on that, similarly if the account itself is treated as a business then you only need to calculate the growth from Year X to Year X +1 and take 2.5% of that. It is irrespective if you have access to the funds or not.
The basis I have for saying this is the loan. When we give money to others on loan the amount of the loan is zakatable and is to be paid by the loan donor. He/She does not have access to it, but must still pay it. Likewise, if an amount is stored away it is zakatable regardless of it being accessible. The zakat on it must be paid by funds in other accounts.