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In this video, Shaykh Dr. Yasir Qadhi covers the fundamental principles of Zakat pt.2 (401K, Mutual Funds & Stocks)
Watch the full video to learn about these topics and much more.
Presentation details: May 12, 2019 @ Memphis Islamic Center
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In the previous article, we discussed the basics of Zakat and the categories of wealth on which it is obligatory to pay. In this edition, we will delve into the Fiqh of Zakat as it pertains to specific types of wealth such as 401K, stocks, and mutual funds.
When it comes to the calculation and payment of Zakat on these particular forms of wealth, there are a few key considerations to keep in mind. Firstly, it is important to note that Zakat is due on the total amount of wealth accumulated within these accounts, including any gains or profits that have been accrued over time.
For individuals who have a 401K retirement account, Zakat is generally due on the entire amount saved in the account, as it represents a form of investment and savings. This includes both the contributions made by the individual as well as any employer matches or additional funds that have been added to the account. Many scholars recommend calculating Zakat on the total value of the 401k account at the time of payment, rather than on an annual basis.
When it comes to stocks and mutual funds, Zakat is due on the market value of these investments, including any dividends or capital gains that have been generated. It is common practice to calculate Zakat on the value of the shares or units held in these investments at the end of the Islamic lunar year, and to pay 2.5% of this amount as Zakat.
It is important to note that Zakat is only due on wealth that exceeds the Nisab threshold, which is the minimum amount of wealth that makes a person eligible to pay Zakat. The current Nisab value is equivalent to 3 ounces of gold or 21 ounces of silver, and individuals who have wealth above this amount are required to pay Zakat on their savings and investments.
In conclusion, the Fiqh of Zakat as it relates to 401K, stocks, and mutual funds involves calculating and paying Zakat on the total value of these investments, including any gains or profits that have been accrued. It is important for individuals to be mindful of their Zakat obligations and to ensure that they fulfill this important pillar of Islam in a timely manner.
Sh. Dr. Yasir Qadhi emphasizes the importance of fulfilling the Zakat obligation on all forms of wealth, including savings, investments, and retirement accounts. By understanding the Fiqh of Zakat as it pertains to specific types of wealth, individuals can ensure that they are fulfilling this important pillar of Islam and contributing to the well-being of those in need.
Timestamps:
0:22 – Modern rules of zakat
1:00 – How do we give zakat on our liquid assets?
2:42 – How do we give zakat on stocks?
6:09 – How do we give zakat on our 401k/retirement fund?
10:29 – How do we give zakat on business commodities?
12:01 – How do we give zakat on loans?
13:42 – Giving zakat on haram money
14:25 – Conclusion
What about Stocks that you long and are not selling or day trading? And what about dividends blue chips that you have purchased for the sake of dividends?
Get educated
https://m.youtube.com/watch?v=slCwdSYd0TE
401 k is investing in stocks and bonds which increases through compound interest. Which part of this is halal?!! These self elected Islamic scholars need to first learn how 401k works. Compound interest is absolutely haram.
401k money is usually filthy due to the the nature of its incremental process. Usually, the money gets invested into stocks (which you may not know, could be haram could be halal), bonds and other financial sectors and you make a profit on that. So, why would anyone pay zakah on 401k when it contains haram money. Also, if we must pay zakah on 401k, doesn’t that make 401k halal for us? Personally,I have always considered 401k to be not halal.
Please clarify.
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In one of your previous lecture you mentioned that one need not to pay zakat for long term mutual fund untill I sell it and get the money in my account, but now your opinion seems to be changed. lets suppose i buy stocks, i hold it for 5 years, i paied zakat for all these 5 years, and at last, if the company bancurrupts, i will not get anything finally but I paid zakat for all these 5 years. please clarify
Q. Would Allah still punish us for Ribah/interest even though the whole world is engulfed in it? Islam and Money Written by Imran Nazar Hosein
A. Allah will hold you to account for that Riba which you can avoid even if you had to flee to the mountains sides where rain falls and take with you some sheep and goats. Source Link: http://www.imranhosein.org
Imran Hosein – The Prohibition of Riba (Interest) [FULL] https://www.youtube.com/watch?v=nKm3J3gJV8c RIBA OR USURY OR INTERSET is the poison which has paralysed the ummah of The Prophet
JazakAllah Khair for sharing your knowledge.
In my opinion as a lay American Muslim (I am not a scholar), the Fiqh Council has made a fatwa regarding Zakah which is more difficult than need be, specifically regarding the 401k. They have concluded that 401K IS zakatable and the calculation should be done after taxes and fees are removed from the entire 401K balance.
I believe this Fatwa does not address several points:
Similar to the moonsiting issue, this issue should be considered within the context of American Muslim life. Given the high costs that incur retirement, mostly related to medical and living expenses, it is incumbent on every American (not just Muslims) to prepare for retirement responsibly so they are not dependent on family, zakah or any other social security benefit which may or may not exist when they retire. For that reason, I believe this fatwa PUTS AN UNDUE BURDEN ON AMERICAN MUSLIMS AND DISINCENTIVIZES MUSLIMS FROM SAVING FOR RETIREMENT.
How? First, you are now asking Muslim Americans every year to take their entire 401K balance and “liquidate” it as a paper exercise. It is common sense that one should NEVER take money of retirement early, unless of an emergency. I believe for many Muslims who do this, they will be much more likely to pull the money out and spend it, just by doing this calculation year in and year out and viewing it as another cash account rather than an crucial asset for financial stability later in life.
Furthermore, Muslims may decide not to take advantage of the 401K because they will now feel they will have to pay zakat on it anyway and may not want the additional hassle of calculating the zakat in this complex way. This will lead to higher tax spend and less money saved for retirement when they need it the most.
Additionally, one’s 401K account and home make the 2 largest asset classes for the majority Americans, and therefore it doesn’t make sense to classify the 401K as an excess wealth.
Fiqh council should view 401K as a future income and NOT as excess wealth. Consider someone who receives a pension benefit from an employer. That employer must set aside funds in order to pay out the pension to the employee at the time retirement, however, the employee does not pay zakat on these (set aside) funds, yet enjoys the benefit of that income later in life. Similarly the US government funds social security, however, no one pays zakat on those funds until they are disbursed (though we fund it through taxes). Similarly, 401K is like a personal pension or social security, the vast majority of people use it pay bills when they no longer work and have no main source of income, to ask Muslim Americans to pay 1-2% each year from this account is burdensome and can really reduce quality of life later in life for that person.
Finally, please consider this in the context of Dawa. Consider the new Muslim or the non-Muslim who’s heart is open to Islam and telling them that now you must pay on your 401K. The concept of working and saving for retirement is so ingrained into the American worker that I fear this fatwa may turn people away who may otherwise embrace Islam.
Do long term vested stock fall in same category of mutual funds or liquid cash?
Why are long term mutual funds being treated differently from a 401(k), which is also a long-term investment? What about rollover 401(k)s that allow you to invest in different baskets, some of these include mutual funds and/or individual stocks. Further, when you invest your roll over 401(k) into individual stocks, that is your ownership in major corporations. Shouldn’t your investment be treated like any other investment in a business (small or big); thus, obligating you to pay zakat only on corporation’s inventory/merchandise (based on your investment in the corporation)? And what is tangible mutual fund?
You didn't mention about the property that's vacant
Is mortgage on the house halal? Would the income be haram because we are involved in usury?
Also, if we are two dependents in the same house and I have separate gold and my mother has separate gold in the house, shall we consider the combined as the nisaab or shall we calculate separately?
Salam, could you please share the nisaab for gold and silver? 2.5 of how much is considered as applicable?
And if the zakaat is applicable and its been more than 1 yr, shall we calculate for the entire term?
For clarity, shall we calculate the tenure from the day the property or assets get to the nishaab point?
JazakAllah e khiaran!!