Fiqh of Zakat - 2019 edition - pt.2 | 401K, Stocks & Mutual Funds | Sh. Dr. Yasir Qadhi
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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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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
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.
Good points!
Completely agree with your points. It's not clear from his lecture though if he is saying the zakat is one time on the full amount, or it's every year.
The scholar said that Zakat on 401K should be calculated as you go and you don't have to cache it out in order to pay zakat on it, you can simulate the calculation and know what the net amount is for zakat. Lets say this year you have 10K then you calculate on that then next year if it 12K then you calculate on that and so forth. He also said that you don't have to pay it now if you don't have the money but when you vest (withdraw it) then you pay the total of all those years you calculated. I also agree with you that 401K or pension money is not accessible now therefore it shouldn't be paid zakat on because at the end this is called zakat-ul-mal (zakat of the money) which mean that you should have that money in your possession or sitting somewhere (like bank, safe box...etc). And Allah knows best
"if you don't have the money but when you vest (withdraw it) then you pay the total of all those years you calculated"
That could amount to tens of thousands and you could find yourself broke. Doesn't that defeat the whole concept of RETIREMENT accounts?
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?
Very good questions. It seemed contradictory to treat 401k differently than a long term mutual fund.
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?
Do long term vested stock fall in same category of mutual funds or liquid cash?
I think he answered that question, listen to him again.
You didn't mention about the property that's vacant
It is called Zakat al-mal (meaning zakat of money) therefore it should be for liquid money that you have sitting in the bank or box...etc... houses and properties don't count here unless you sold the house then you pay on the money you get from the sell. And Allah knows best.
The same should be applied to retirement accounts like the IRA since owning shares in a mutual fund is not owning cash unless you sell them.
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!!
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
Zakat is dependent on what's it's worth at the time it's due. Don't worry about future value.
Same could apply to gold etc.. Perhaps gold value plumets and you've paid zakat makes no difference. There's nothing more to it insha Allah.
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?
The zakat should be given by individuals based on their owned assets (money) which means that your zakat should be independent from your mom's zakat and your siblings zakat. Calculate your zakat from what you own and your mom should do the same for what she owns...etc.
As for mortgage, there are different opinions about it where some scholars said that if it is an extreme necessity (daroura) then it is halal however others said no because you can always find the rent. However I think the Sheikh here was referring to the mortgage through Islamic banks which considered to be halal because it is a kind of murabaha or musharaka, and Allah knows best.
@@MJ-cf9nl jazakAllah
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.
Many scholars said that 401K is the only way for people to be able to retire so they allowed it, there is no certainty that the money is haram because it might have been invested all in good stocks. Other scholars went the route of saying that you can purify your 401K when you vest it by taking away the interest part and only keep your contributions plus your employer's matching...etc (and give away the interest part if you are not comfortable with it). Other scholars say that it is not your job or business to dig and know where was the money invested, as long as your intention was good when you signed up for 401K then the blame is on them.......others said that if it is required by your employer then you have no choice otherwise don't sign up. Many Islamic counties include the Golf countries have similar pension retirement programs..... I myself was in your situation and never signed up for 401K with my previous employers which cost me thousands of dollars of free matching money, I kept researching the topic and finally came to the conclusion that it is an open topic and the scholars have no clear decisive answer about it. So as long as you have good intention then you go with makes you feel comfortable and Allah knows best.
Siddiq Sid m.th-cam.com/video/slCwdSYd0TE/w-d-xo.html
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.
This scholar is from the US so I am sure they know how 401K works. 401K is a broad topic and has many different opinions so go with what makes you feel at ease, why don't you purify your 401K money by taking the interest part out of it and only keep your contributions and your employers matching.... give away the interest part if you are not comfortable with it.....Allah know best.
He might have forgot that point, he mentioned at the end that there is no zakat on haram earnings. And you should basically seperate that interest and not use it for yourself anyways.
Free mixing of men and women is prohibited because that environment can lead to zina, similarly growing grapes for making alcohol is prohibited. Look at this very carefully- for years after years I contribute to an instrument that generates interest. In other words I should fuel this interest generating machine and in the end separate the interest and give it away!. How is this halal? . It’s very important to keep away from haram and anything that leads to that haram.
Remember the misled and the one who misleads both shall be the fuel of the hellfire. No scholar will bear the burden of our individual sins.
@@mirali3526 401k is just a type of retirement account which has tax benefits. There are ways to have a halal 401k where you can control where your money goes & what your money is invested in. I personally have one and invest in Amana & Wahed funds which contain only halal stocks and assets