Do I pay zakat on my 401(k) or pension?

The two main views

• Pay yearly on the accessible value: if you can withdraw the money (even with a penalty), you have ownership and control over it, so it's zakatable like other savings. This is the view of many North American and European fatwa councils.
• Pay once you receive it: money locked away by law or by your employer isn't under your full control. Zakat starts once it's paid out to you, and some scholars say you pay one year's zakat at that point.

The underlying principle is that zakat purifies wealth you truly own:

The accessible value method

If you follow the yearly view, a common way to calculate it is:

• Take the account balance on your zakat date.
• Subtract the early-withdrawal penalty (for example 10% on a US 401(k) before age 59½).
• Subtract the income tax you'd owe on withdrawal.
• Add what's left to your other zakatable wealth and pay 2.5% on the total.

If the account is invested in stocks or funds, some scholars allow paying only on the zakatable portion. See Do I pay zakat on stocks?

Pensions you can't touch

Many workplace pensions in the UK and Europe, and US defined-benefit plans, can't be cashed out at all. Most scholars say there's no zakat on these until you start receiving payments, and then the money you save from them becomes part of your normal zakat.

Keep it simple

Pick one view, ideally after asking a scholar you trust, and apply it consistently. If you're unsure, paying on the accessible value is the more cautious choice. Make sure your retirement investments themselves are halal too. See Can I invest in stocks as a Muslim?