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Many differences of opinion. Some people say you don’t include 401k/IRA accounts as part of Zakat because you have to incur a penalty to withdraw and therefore it’s not technically accessible. Others say you do.
The rigorous answer would be to calculate your proportional ownership of each company you have and pay Zakat on your share of the assets. Clearly that’s not an easy task, so many scholars have allowed you to approximate your Zakatable balance as 25% of the value. As an example,
$10k in an investment account
=> 25% zakatable = $2500 you would owe Zakat on
=> 2.5% of $2500 = $62.50 you pay in Zakat
401k balance - fees for early withdrawal (10%) - taxes = your 401k balance that is zakatable so * 2.5%
Yea… not sure about the 25% thing. It’s not hard to calculate, takes like 10 mins
Thank you! A couple more ques. If you own a home and pay mortgage, do you subtract that somehow or do nothing? Any other expenses like student loans, car payments, etc?
Also, any link to a credible source where I can read about it and it’s explained simply? I’ve read Zaytuna and LaunchGood but still find myself overwhelmed and lost
In classical fiqh, you would subtract all liabilities before zakat calculation, but given the nature of mortgage as a very large, long term loan, you don't subtract that. Search Sheikh Yasir Qadhi's video on that he did as part of a lecture series at EPIC.
You still would subtract personal loans (and add receivables if you're a lender of personal loans to someone). Car loans, I'm not so sure. My guess would be no.
Sheikh Joe Bradford just launched this website that calculates your zakaat for you. Made my life easier
https://simplezakatguide.com
This assumes 30% value of long term brokerage
*stupid SIMPLE guidelines
Thank you everyone. I’ve seen these variations through my research as well.
Thanks for the link D2. I looked at the guide and based on this, it says you can defer zakat on 401k/ IRA until retirement. But most of the 👆🏽comments suggests otherwise.
This has been my confusion and I am not sure which way I am supposed to go.
You don’t include it because it’s not accessible funds
I would argue that the tax at marginal tax rates and the fees render it as inaccessible. In addition, it is impacting your future livelihood as it is set away for retirement.
Zakat shouldn’t be this difficult. Give zakat, make duaa, and you’re good. No need to overthink or over complicate.
Exactly this thank you! I only give it based on current cash assets i have in bank accounts. Anything for retirement/brokerage isn’t accessible and set aside for future needs. you can pay zakat on it when it’s actually in your checking account later on.