Zakat on Retirement Accounts: 401(k), IRA, and Pension Plans
When zakat becomes due on retirement savings, how to account for penalties and taxes on early withdrawal, and a practical method for calculating what is owed each year.
- LFP Fatwa Committee
- August 2, 2026
- Zakat
- 18 min read
The question
We have received many questions about whether zakat is due on retirement accounts such as a 401(k), 403(b), or IRA, and if so, how it should be calculated given that the funds are not freely accessible without penalty.
Ownership and access
Zakat is due on wealth that a person fully owns and is able to access. Retirement accounts present a special case: the funds belong to the account holder, yet withdrawing them before retirement age usually incurs a penalty and income tax.
The stronger view is that zakat is due on the amount that the holder could access if they withdrew today, that is, the account balance less the early-withdrawal penalty and the taxes that would be owed.
Calculation
- Find the current balance of the account on your zakat date.
- Subtract the early-withdrawal penalty and estimated taxes.
- If the account is invested in shares, you may apply the method used for stocks held for the long term.
- Add the result to your other zakatable wealth and pay 2.5% of the total if it exceeds nisab.
Defined-benefit pensions
Pensions that pay a fixed benefit at retirement, and which the employee cannot access beforehand, are not zakatable until payments are received.
Conclusion
Zakat is an act of worship and a right of the poor in our wealth. When in doubt, we encourage paying on the larger amount, and Allah knows best.