'' Our Lord ! grant us good in this world and good in the hereafter and save us from the torment of the Fire '' [Ameen]
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{in Arab} :->
Rabbanaa aatinaa fid-dunyaa hasanatan wafil aakhirati hasanatan waqinaa 'athaaban-naar/-
(Surah Al-Baqarah ,verse 201)
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Since lawful 401K plans are considered business investments, the money
invested does not come under the definition of being a debt and thus
zakāt is necessary each year as long as the total amount (along with
any other savings a person has, minus any debts) meets the zakāt
quantum [nisāb] which is approximately $140. One is obliged to pay 2.5
percent on the total value of one�s investments (which includes one�s
owninvestment, 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
installmentsso the employees cannot take the whole amount at once],
and any gain or profits that have since been accumulated. In other
words the zakātableamount will be the amount a person would consider
his or hers at thattime even if he was to leave his employment.
For instance, if a person�s total personal investmentsin his or her
401K plan are$5,000.00 along with$2,500.00 matched by the employer,
then the zakāt 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 zakātable assets
likecash in hand or inventory, etc. then the total zakātable income
is$10,000.00, hence, his zakāt will be $250.00 for that year.
Any penalty amount or taxes that one would haveto pay if they did a
premature withdrawal of their investment are not exempted from the
total zakātable 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 zakāt on the amount left on the day the zakāt becomes due
after deducting any penalties or taxes.
And Allah knows best.
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