401K savings Zakat?

[Baashi]

If one has N figure ($) in one's 401K account, N figure that's yet to be taxed, how one should calculate what one owes?

 

Nur, Xiin, Mutakalim, anyone?

[Nur]

Bashi Bro.

 

Here is what I found on the net, I hope it helps.

 

ZakÄt on 401k plans

 

Given that one cannot withdraw from 401K plans until one is 59.5 years old without facing a penalty, the question comes up as to how and when zakÄt needs to be paid on this.

 

Since lawful 401K plans are considered business investments, the money invested does not come under the definition of being a debt and thus zakÄt is necessary each year as long as the total amount (along with any other savings a person has, minus any debts) meets the zakÄt quantum [nisÄb] which is approximately $140. One is obliged to pay 2.5 percent on the total value of one’s investments (which includes one’s own investment, along with any amount added by one’s employer that has vested [i.e. the money is now considered the employees since some companies release the amounts contributed by themselves in installments so the employees cannot take the whole amount at once], and any gain or profits that have since been accumulated. In other words the zakÄtable amount will be the amount a person would consider his or hers at that time even if he was to leave his employment.

 

For instance, if a person’s total personal investments in his or her 401K plan are $5,000.00 along with $2,500.00 matched by the employer, then the zakÄt will be 2.5% of $7,500.00 which is $187.50 for that year.

 

If he or she has an additional $2,500.00 in other zakÄtable assets like cash in hand or inventory, etc. then the total zakÄtable income is $10,000.00, hence, his zakÄt will be $250.00 for that year.

 

Any penalty amount or taxes that one would have to pay if they did a premature withdrawal of their investment are not exempted from the total zakÄtable income each year, unless a person makes such a withdrawal or cancels his or her plan. In this case he or she would only pay zakÄt on the amount left on the day the zakÄt becomes due after deducting any penalties or taxes.

 

And Allah knows best.

 

October 25, 2004

 

Wassalam

 

Abdurrahman ibn Yusuf Mangera

[Libaax-Sankataabte]

Thanks brother Nur. That was good enough.

 

I previously thought that

 

Zakat = 0.025(Tc)

 

// Tm = total money, Tc = tax constant which I took as being 0.6 max for US accounts (state tax, federal tax, 10% penalty)

 

But the question of what is actually my money since there is tax, unmatured vested portion, etc was bothering me. Thanks for clarifying it.

[Baashi]

Shukran Nur.

 

Libaax the tax constant is 0.3 (20% withheld by Uncle sam + early withdrawal penalty which is 10%). And that is if you plan to retire in the islands south of Kismayo prior reaching 59.5 milestone (milestone Uncle Sam has set for the 401k account holders).

 

Zakat = [(Tc)]*0.025

Tc = 1 - 0.3 = 0.70

Zakat = [(7500)(0.70)]*0.025

Zakat = $131.25

 

Nur there I saved you $55.75. A few more bucks that you can give away for more credit from mina Allah.

 

Note: state tax is not included in my cal.