You may not have a 401k plan or an IRA, but instead a more traditional pension. If this is the case, you are not alone, and like many other people are asking yourself:
Do I have to pay Zakat on my pension or retirement plans?
Investopedia defines a pension plan as:
A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee’s future benefit. The pool of funds is then invested on the employee’s behalf, allowing the employee to receive benefits upon retirement. Continue reading
Do I have to pay Zakat on my stocks and shares?
If you own stock in a company (or shares as they are called) then to determine their liability for Zakat you should look at the investment strategy you are using.
- If you are using them for a long term investment (something you plan to hold for a year or more) then if they are more than Nisab,
- A – If the company does not have any assets other than the dividends, then you will pay Zakat on the dividends distributed by those stocks (shares) when paid,
- B – If the company holds assets (cash, receivables, inventory) then you will pay Zakat on the book value / net asset value as well as the dividends.
- If you are an active trader, or have an active portfolio in a mutual fund, then you will pay Zakat yearly on the market value of the stock (share) or the portfolio, as well as the dividends.
- If you sell these stocks (shares) during the year, you will add the amount received from sale to your liquid assets and pay Zakat according to general rules of Zakat.
This is the method prescribed the Fiqh Academy of the OIC and is generally prescribed by most scholars who are specialists in the field. There are other opinions, but we will cover those in a more extensive article.