This may sound like a simple question but it takes an expert in both Islamic law and modern finance to answer it. So I knew who to ask; Shaykh Joe Bradford has a graduate degree in fiqh and ten years of professional experience in banking and finance. This is his answer:
“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- 401k plans are not actively managed by the employee and are subject to a penalty if withdrawn before the employee is 59.5 years old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.”
With so much financial uncertainty during a lockdown, your Zakat can make a global impact this Ramadan. LaunchGood has hundreds of scholar-verified Zakat campaigns. You could help provide food, shelter, and medical aid to displaced people of Idlib, basic necessities to those affected by COVID-19 in your local community, or a safe haven for special needs children in Afghanistan.
May Allah purify your wealth and place much barakah in it, Ameen!
Zainab Husain is the Director of Business Marketing at LaunchGood | Passionate about platform growth | Zakariya's mama | my coffee machine is my favourite co-worker