Author Archives: Joe Bradford

About Joe Bradford

About Joe Bradford

Joe is a structuring advisor for a major real estate development firm, specializing in Shariah compliant investment vehicles. He runs a financial advisory. He is the founder of Muslim Money Guide and also blogs at

Do I pay Zakat on 401k and IRA? Is it 2.5% or 10%? (updated with new info about Roth IRA)

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M Babu asks:

As Salamualikum. Ramadan ul Mubarak. I need to understand zakat on retirement funds contributed by both employer and employee. As a teacher, I have a TIAA-CREF retirement account where I contribute and my employer contributes a matching percentage of the salary. All my investment is in stocks since other options are interest bearing.  I can not receive the cash until it vest when I reach retirement age. Do I have to pay zakat on the amount of this retirement fund that has been accumulated?

Another Questioner asks:

I am looking for clarification on rules for zakat on stocks and zakat on 401K.

1) Below excerpt from _____ fund web page says zakat of 10% is due on INCREASE of asset and not on the base asset. I was under the impression zakath is due on the whole capital.  I want to do the right thing. What is the correct basis?

2) The 401K is a fund that is joint contribution by employer and me. It is not yet tapped into as I have not retired. Although I could take withdrawal from it as I am over 59.5 yrs. Is zakth due on 401K (these are in stock fund).



Retirement funds and similar are something many people ask about it.

Let’s look at the issues at hand above based on the two questions presented:

1-      How much Zakat is paid on business partnerships and investments?

2-      Is my retirement account (such as 401k, IRA, or similar) liable for Zakat?

If you are looking for more information on how to pay Zakat on Mutual Funds and Stocks/shares NOT part of your retirement fund, click on the previous link.

How much Zakat is paid on business partnerships and investments?

Business partnerships and investments are due 2.5% when paying Zakat on them. Mutual Funds, which invest in a portfolio of stocks (shares) are business partnerships and are treated as such when calculating profits and zakat. To make them analogous to agricultural projects is incorrect for several reasons most of which cannot be mentioned in a single post. Those interested can look for module five of my Zakat course entitled “Advance Topics in Zakat Law.”

Is my retirement account (such as 401k or Traditional IRA) liable for Zakat?

Modern scholars differed as to when to pay zakat on retirement accounts such as 401k, Traditional IRA’S,  and other similar investment vehicles wherein a person does not actively have control over and cannot access without penalty the funds therein until a threshold or time period is met.

Perhaps the more correct of these 2 opinions is that Zakat is not due on your retirement account (401k, IRA, or similar) until it is time to cash out without penalty.

  • If the conditions of that account state that after a person reaches a certain age (say 55 or older) then he or she may withdraw without penalty then Zakat is paid on that amount when you reach that age. Each subsequent year, if Nisaab still exists in the account, you would pay on that account.
  • If you cannot access the funds in that account, or you are penalized for early withdrawal, then you are not liable to pay Zakat on that account.
    • Zakat is only due on unhindered, fully accessible wealth which is actively managed by the investor.
    • Any wealth which is lost, inaccessible, held in an illiquid state, or cannot be accessed freely without penalty is not liable for Zakat.
  • If the wealth in the retirement fund is designated for the employee then he must pay 2.5 percent of that amount only when he cashes out without penalty at the time those funds are made available to him.
  • If he or she chooses to cash out early and pay the penalty then they must still pay Zakat on the amount withdrawn immediately at the time of availability regardless of the matching funds contributed by his employer or not.
  • If he is not allowed to cash out, but instead is forced to take a loan from the 401k fund and pay it back with interest, then he or she will not pay Zakat on this amount until it remains in possession for one year after receiving it from the 401k fund.
  • You pay 2.5% on the amount available to you at the time the money is made available to you without penalty. You do not compound 2.5% for the entire tenure of the investment; you only pay 2.5% for one year on the amount made available at cashout without penalty.

What about Roth IRAs? Do the same rules apply? (Added 7/28/2013)

Roth IRAs function differently than 401ks and traditional IRAs. Contributions to a Roth are taxed, and thus the capital therein can be withdrawn tax-free and penalty free. Earnings however are subject to two conditions: funds must have been in the account for five years, and you must be 59 and half years old to withdraw.

That said, because contributions to the Roth fund are liquid and penalty free, you must pay Zakat on the total amount of contributions. Add your total Roth amount minus earnings lesser than 5 years as a line item to your Zakat calculation and pay 2.5% on that amount. Easier still would be to add the entire value of the Roth as a line item, and consider the extra paid on earnings as a pre-payment of Zakat on those funds.

Which ever you choose, remember that regulations and tax implications for IRA accounts are detailed. My advice is that you talk to a an advisor versed in tax law as well as Islamic financial ethics before making a decision to make a withdrawal. If you need confidential advice on how to calculate and pay your Zakat, please contact me through this site.

What about ESA (Education Savings Accounts) and similar?

Look forward to a new article on the topic of educational savings funds coming soon.

Don’t see what you’re looking for here? Try our Zakat page for more information.

Can Zakat be given to Non-Muslims?

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Can Zakat be given to Non-Muslims?

There is general agreement that Zakat is not to be given to anyone who is fighting against Islam and Muslims; this is a point that does not need much elaboration. As for others who are non-combatant, and do not show enmity towards Islam and Muslims then medieval scholars differed as to whether such a person can be given Zakat.

Ibn al-Mundhir, in his influential work al-Ijma’, mentions the following:

وأجمعوا على أن الذمي لا يعطى من زكاة الأموال شيئا

They have consensus that the Dhimmi[1]
is not to be given anything from Zakat of wealth.

Given the relation of this point of consensus, many scholars followed Ibn al-Mundhir stating that non-Muslims should not be given Zakat. It is important to note here that the same set of scholars who followed this opinion reiterated the necessity of using other non-Zakat funds for the welfare of non-Muslims.

Looking at Ibn al-Mundhir’s statement, and despite the frankness of his assertion, a cursory review of the literature on Zakat shows that in fact there are variant opinions on this topic.

In summary, there are four opinions on giving Zakat to non-Muslims:

–         Opinion #1: Zakat cannot to be given to non-Muslims in any way shape or form, not even under the account of “those whose hearts are softened”.

  • This opinion is the official position of the Hanafi school.
  • Basis: Several reports that Umar refused to give Zakat to several people after Islam had become strong.

–         Opinion #2: Zakat should only be given to non-Muslims under the account of “those whose hearts are softened”.

  • This is the official stance of the other 3 schools.
  • Basis: Narrations  exist where the Prophet gave non-Muslims Zakat to entice them to become Muslims.

–         Opinion #3: That Zakat should only be given to non-Muslims in the absence of eligible Muslims.

  • This was the opinion of Mujahid, the student of Ibn Abbas. [2]
  • Basis: The hadith of Muadh states “..taken from their wealthy and given to their rich…”, poor non-Muslims being members of communities in which rich Muslim might live.

–         Opinion #4: That Zakat may be given to any person fitting the description given in the verse of Zakat, regardless of whether this person be Muslim or non-Muslim.

  • This was related from Umar, Jabir and Zufar (from the Hanafi school) and others.
  • Basis:
    • The generality of the verses on Zakat and charity, which do not in themselves specify one type of person over the other, and instead designate categories.
    • Umar was asked about the verse “Charity is only for the destitute…” He said: “They are the disabled from the People of the Book”.[3]
    • Jabir ibn Zaid, the famous jurist from the Tabi’in, was asked “Where should be distribute our Zakat?” He replied: “To the destitute amongst Muslims and Dhimmis.” He then stated “God’s Messenger would distribute to the Dhimmis from both Zakat and al-Khumus”.[4]

The fourth opinion fits not only the generality of the verse, but the broadest understanding possible of the hadith of Muadh, as well as fitting in with the explanation of Umar of the verse. It would seem that the unequivocal nature of Ibn al-Mundhir’s statement, as well as its precision, is highly debatable and due further research.

[1] – A dhimmi is a non-Muslim citizen of the Islamic state

[2] – Ibn abi Shaibah, Al-Musannaf, 3/177.

[3] – Ibn abi Shaibah, Al-Musannaf, 3/178.

[4] – Ibn abi Shaibah, Al-Musannaf, 3/178.

Don’t see what you’re looking for here? Try our Zakat page for more information.

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