Q: As’salam Alaykum beloved Shaikh, I’ve some questions regarding zakat payment. To be more specific, I want to know if I’ve to pay zakat on my 401K account. Here’s the deal, I used to contribute to 401K in the years gone by (I don’t do it anymore). Our company automatically deducts some amount from our paycheck based on the percentage that we choose. This money goes to the 401K account and I’ve no access to it. I can only gain this amount once I leave the company. I’ve read somewhere that if the money goes to 401K fund automatically from the paycheck without the employeee seeing the money then there’s zakat payable on it only after the employee gets this amount in hand. However if the employee gets the money from paycheck and then himself contributes some amount towards the fund then zakat is due on this fund every year. Kindly elaborate on this issue as my zakat is due in Ramadan and I’ve to pay it soon. My second question regarding zakat is that can we give zakat money to Islamic charities which are doing some good work in places like Pakistan, Afghanistan, Somalia etc. They confirm that the zakat money goes to deserving people (to be honest the amount of misery and destitution is so high back home that I’d rather send zakat money back home than give it locally) and they’ve very good reputation. Waiting eagerly for your reply. May Allah bless you, grant you long life, knowledge and health. Ma’salama.

A: Walaikumsalam,

401K money is that money which generally people have control over. You can deduct portions of it whenever you wish, albeit penalty. Since you are the Malik of such monies, zakat would be due upon it by you, the owner.

Method of paying zakat:

Method 1)      Pay it when you receive the wealth at the time of retirement. At that point, pay for each year that you did not pay on it.  For this you would need to get hold of the 401K records or previous years at the time of receiving all this 401K wealth.

Method 2)      Each year figure out how much is due. For example, lets say you have 100 000 in the 401K plan this year. Deduction penalty would be 20 000 or 20%. Thus, what you would do is deduct 20 000 (or 20%) from the 100 000, which leaves you at 80 000. Thus, you would have to pay zakat of the 80 000.  Thus, in this scenario, you would have to find out the penality cost and thereafter figure out your zakat amout. I recommend this second method, for it is more gradual and allows you to keep better track of zakat owed to poor. It would also prove less burdensome in the long run.

 

Regarding giving money to agencies.  I recommend that you find poor people that you can hand over the zakat to directly yourself. If you know of a poor person in ‘Pakistan, Afghanistan, Somalia etc,’ (countries you made mention of) or know of a person that is honest and can hand the money over for you to the poor person. However, if the money was not handed over to the person by this person or the agency working on your behalf, then in such a situation your zakah would not go through and you have to regive this charity again.

Allah certainly Knows Best.