Answered by Shaykh Irshaad Sedick
For a year, I was getting the company matching without investing in the 401K (I contributed to a stable index fund below the inflation rate to get the company matching). I thought this was a good idea at the time since there was no sharia-compliant fund in the 401K.
I recently stopped that, but my company also puts 5% of the employee base salary each year in their 401K whether the employee contributes or not. My question is, should I only pay Zakat on the portion of the 401K I have voluntarily contributed to, and this will be only once since I have done that for one year?
Or should I also be paying Zakat on this money my company gives away each year? I can’t access the 401K funds for now.
I pray this finds you in the best of health and state. Please see the answer below as written by Shaykh Faraz Rabbani:
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). [Nawawi, Minhaj]
You can use this option:
Calculate Zakat Now
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.
[Shaykh] Irshaad Sedick
Checked and Approved by Shaykh Faraz Rabbani
Shaykh Irshaad Sedick was raised in South Africa in a traditional Muslim family. He graduated from Dar al-Ulum al-Arabiyyah al-Islamiyyah in Strand, Western Cape, under the guidance of the late world-renowned scholar, Shaykh Taha Karaan.
Shaykh Irshaad received Ijaza from many luminaries of the Islamic world, including Shaykh Taha Karaan, Mawlana Yusuf Karaan, and Mawlana Abdul Hafeez Makki, among others.
He is the author of the text “The Musnad of Ahmad ibn Hanbal: A Hujjah or not?” He has served as the Director of the Discover Islam Centre and Al Jeem Foundation. For the last five years till present, he has served as the Khatib of Masjid Ar-Rashideen, Mowbray, Cape Town.
Shaykh Irshaad has thirteen years of teaching experience at some of the leading Islamic institutes in Cape Town). He is currently building an Islamic online learning and media platform called ‘Isnad Academy’ and has completed his Master’s degree in the study of Islam at the University of Johannesburg. He has a keen interest in healthy living and fitness.