Do You Owe Zakat on Your 401k?

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You have a good job that provides a 401k, with a good amount of money in the account.

Do you owe zakat on your 401k?

You need a solid answer. There are thousands of dollars per year at stake, not to mention your duties as a Muslim.

The challenge of Islamic personal finance in the US

I’ve heard questions like this since I first accepted Islam, more than 20 years ago.

To understand Islamic personal finance, one must be a scholar of both Islamic law and modern finance. Very few people have this training. As a result, ordinary American Muslims struggle to find answers to basic financial questions.

I have now studied both Islamic law and modern finance for almost two decades. I have earned both ijaza and a graduate degree in fiqh, and I have worked professionally in banking and finance for 10 years.

From the time I returned to the US in 2012, I have worked to understand and address the financial issues that affect ordinary Muslims in this country. Muslims need solutions that fit the reality of our lives, and are firmly grounded in our ancient tradition.

Zakat and 401k

For example, regarding the issue of zakat on a 401k account, I advise my clients not to pay zakat on their 401k if they are younger than 59.5 years of age. The reasons for this are as follows:

  • Zakat is only due on wealth that is fully accessible to and actively managed by its owner
  • Zakat is not due on wealth that is inaccessible, illiquid, lost, or that cannot be accessed without penalty
  • 401k plans are not actively managed by the employee, and are subject to a penalty if withdrawn before the employee is 59.5 years old

Therefore, I advise that 401k accounts are not liable for zakat if the account holder is younger than 59.5 years of age.

The Simple Zakat Guide

In 2015, I published the  to help the average Muslims understand and fulfill his their zakat obligation. The Simple Zakat Guide book covers both the “why” and the “how” of zakat. It explains some of the wisdom behind each ruling, in simple language, and drawing on Qur’an, hadith, and statements from scholars. It also includes worksheets to make it easy. The book is rather like an IRS Form 1040 EZ, with instructions – but for zakat.

I wrote the Simple Zakat Guide to help ordinarily Muslims gain a working knowledge of zakat.

The Simple Zakat Guide, 2nd edition is available on Amazon in both hard copy and Kindle versions.

Lifetime access

Zakat is a lifetime obligation. The purpose of zakat is to purify your wealth, so that you can derive benefit from it as it grows. To fulfill the duty of zakat in our changing world, you need a resource that grows with you. The Simple Zakat Guide is now in its second edition. I intend to update and improve the book each year, both to address new and emerging financial issues, and to make it easier and more convenient to use.

If you choose to purchase the Simple Zakat Guide, you almost certainly take your zakat obligation seriously. I see it as my duty to serve you to the best of my ability, both now and in the future.

Purchase of the Simple Zakat Guide gives you access to the following:

  • Lifetime Kindle updates of each new edition of the book
  • Early access to a suite of financial and legal products designed for American Muslims
  • Expert advice to help you negotiate issues of wealth and personal property

These benefits are only available when you register your copy of the book.

How to register for lifetime access

To register your copy of the Simple Zakat Guide:

  1. Click here to purchase the Simple Zakat Guide on Amazon
  2. Click here to register your copy

I hope that this book will be beneficial and useful to you, and that it helps you to navigate the complexities of modern personal finance in the U.S.

 

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