Zakaat.

[The_Jinx]

Re: Zakaat.

@X2

I am sorry but the mufti needs to understand how 401k function better. Zakat is on wealth, 401k is not real wealth it’s value can change when you actually withdraw it based on your tax bracket and the tax rate at that time. Additionally how it performs during the time period prior to withdrawal is not predictable.

If we go back in time and say someone should have been paying zakat on their 401k balance minus any taxes and withdrawal penalties and then the value of the portfolio dropped by half in 2008-2009 timeframe when they retired and had actual access to the funds then they overpaid quite significantly. My view although I am not a mufti but a mufta is that no zakat is due until you actually have the funds whether early withdrawal or at regular withdrawal time.

The big challenge I see is that of logic when it relates to 401k and also mortgages. Some scholars say no tax on 401k until u actually have use of it, some have formulas as noted, others say 401k are basically haram, even if you are all in stocks and not bonds because stocks may be for companies with some threshold of interest. So do you pay zakat on haram money?

Then the mortgage question is handled quite opposite, many scholars will not let you deduct the mortgage debt liability.

Anyway yet one more interesting thing I read was that the zakat should be given in your own area, city, state/province etc before looking elsewhere. That kinda messes up the whole angle of ppl sending zakat to Pakistan when there is a need right here. What are people’s thoughts about this point?

Totally agreed with the last part. Zakat’s first implementation is local. But if you send it out to some deserving person/s in the relatives overseas, it’s also recommended because kins and relatives are supposed to be first choice.

Regarding 401K, the mufti (as opposed to mufta like you said:D) was of opinion that zakat is due on any wealth/assets you have at the end of the year regardless if the value fluctuated during the year as long as you are sahib-e-nisab. In this case, you would calculate the current value of 401K when taking out the zakat. It’s bound to change just as your wealth in the bank changes over the year but you take zakat out of the total available at the end of year.

Of course, your opinion has own reasons and I am providing a point of view that I felt made more sense to me.