Answered by Shaykh Faraz A. Khan
Question: Do you consider the 401K as part of your assets in calculating zakat if it is technically something I cannot take out until retirement?
Answer: Assalamu alaikum wa rahmatullah,
I pray this finds you in the best of health and states. Please pardon me for the undue delay in response.
Because retirement plans such as 401K are assets/money owned, they are zakatable. However, zakat will not be due until one has full access to the money, at which point zakat is owed for all the past years (i.e., for each year one owned nisab or more). [Ibn Abidin, Radd al-Muhtar]
It is advisable to go ahead and pay zakat on the plan each year, based on its total value that year, since otherwise it would take much effort to keep track of the yearly amount in retrospect when one finally has access to the money.
Lastly, one must pay zakat on the total amount in the fund, unless one makes a premature withdrawal or cancels the plan, as that would result in penalties or taxes. In that case, those penalties or taxes may be deducted.
And Allah knows best.
Checked & Approved by Faraz Rabbani