Ask Shaykh YQ #85 – Zakat on 401(k)’s and IRA’s

Today's q&a is actually going to be a rather lengthy answer is going to be only one question. And it is with regards to Zakat on 401 Ks a cat on retirement funds? This is a question that I have been asked by many dozens of people. And I've actually given previous lectures about this today shallow, we're going to go into a little bit of detail about whether the cat should be given and how much you be given and how do we calculate the cat on retirement funds.

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Now, before we begin, I need to point out that this is a topic dealing with Islamic finance. And as I have said, many, many times modern Islamic finance is actually a very new field. It's a very interesting field, it is a field that has a lot of diversity, and a lot of different opinions. And I do not claim to be an expert on Islamic finance Far from it, I follow those that are senior to me. So in today's lecture, I will be quoting scholars more senior to me, and I will be taking the position that is advocated by some of my teachers, and also the counselors in North America. But I have utmost respect for the other positions out there. And it is up to you, obviously, to choose

your authority, you should realize that there is a spectrum of opinion and we're going into those opinions. Now, for those of you that do not want to listen to the entire lectures are going to be too long for you. The quick and short answer is that the position that I will be advocating, which is the position that is the full Council in North America, and also the position of our teacher, Chef Sala Hawsawi, the founder of Amgen, and a number of other senior scholars of this land is that 401 K and all retirement funds that are basically based in North America, in America in particular, that Zakat is due on the amount not of the paper amount, but rather the amount that you can withdraw

after taxes and after penalties. So whatever the amount might be on paper, that's one thing, then suppose you were to withdraw that amount, suppose you put in the paperwork and you signed all the forms, and you insisted that you want to get that amount back, that amount is not going to be the paper amount, you're going to first take the penalty away, and then you're going to take this taxes away. Once you have done that you get a significantly lesser amount, maybe by 30 40%. So that amount that is remaining. Zakat is due on that amount annually. This is the position of a number of scholars, and also the position of the field counselor in North America do realize there are other

positions as well. And we'll be explaining them bit by bit in shallow data. Another caveat as well, today's lecture is about the United States of America, in particular, because retirement funds vary from country to country. And so if people are watching from another country, they should ask the scholars of those lands and the field councils of those lands, because retirement funds are something that are countries specific and change from from place to place, and therefore the first two or the fifth will also change from place to place. So with that, let us begin, I actually have a brief PowerPoint as well that I was giving a talk somewhere. So I prepared this PowerPoint for them

that retirement funds in America, they are primarily of two types, you have the employee sponsored, and you have the individual retirement account. And of course, the individual retirement account, this is the self sponsored. And of course, this is the IRA or the IRA. And this is divided into two primary ones, the Roth and the traditional. And the main point here, when when you're doing when you're dealing with an with an IRA, you are the one putting the money into the retirement, nobody else is putting that money in and you're there is no employer that is going to also be putting in some of the money into the fund, you alone are going to be the person that is putting the money.

That's why it's called individual IRA, the individual retirement account, and there is no matching amount that anybody else puts what you put is what is in the fund. And this is divided into two categories, the Roth IRA and the traditional IRA. And as for the Roth IRA, so the Roth IRA, you have already paid your taxes from your salary, and you are now putting your money into the IRA or the IRA after paying your taxes. And therefore, when you cash out, there is not going to be any taxes to pay. So the Roth IRA or the Roth IRA, you have already paid the taxes. So suppose your salary is 80,000. Let's make it easier. $100,000. Right, your salary is $100,000 and you want to finance your

retirement fund with the Roth IRA

So from your salary, it's now in your pocket, you will write a check to your retirement fund, you have already been taxed the tax amount you will pay to Uncle Sam that year. And you will then add an amount into your retirement fund, because you've already been taxed, you will not be taxed again, when you want to cash out that is the Roth IRA. As for the traditional IRA, that is a fund where you can invest before you pay taxes to Uncle Sam. So the income that you're going to get you can say I want to put this amount into the traditional IRA, and therefore, you will be taxed when you cash out whenever you retire. So the differences in taxation, and therefore, the Roth IRA, there is no

penalty of there is no taxes for taking the money out. And also when it comes to the Roth IRA as well, that the Roth IRA allows you to withdraw any amount that you have invested without even taxes or even a penalty. If you have invested that amount, you are allowed to withdraw it without any taxes or penalty, you have much easier access than the other funds. This is the IRA Individual Retirement amount the IRA, as for the employee sponsored, the employee sponsored is of multiple types we're really primarily primarily interested in is a 401k. As for the 403, B and the 457. And others, frankly, it doesn't matter to us as the end user, it's only between the corporation's

themselves, which one works better for their internal tax purposes, it doesn't really change the fifth at all, because from the user's perspective, fit wise, it is exactly the same. Now what is the key point here of the employer sponsored 401 Ks is that two things are at play. First and foremost that the employee, sorry, the employer, excuse me, the employer sponsored not the employee the employer sponsored, firstly, the employer, your company is going to give a matching donation a matching amount. So if you give 10,000 to the employer, it's going to be in your contract, what is it gonna be the maximum amount the employer is going to give, the employer might say, I'll also give

10,000. So you are essentially doubling the amount without you actually paying that amount, you're going to pay 10,000, the employer adds 10,000, and it goes to the retirement fund as 20,000. And that is a bonus or something that the employer is a part of the packet that is giving. And secondly, when it comes to employee sponsored, employer sponsored company sponsored when it comes to the company sponsored. In that case, you are not writing the check, it is being deducted from your paycheck, so you never actually see the money. So you get the check. And the check already has withdrawn from it, there's already an amount taken, and that amount is going straight to the 401k.

So you don't actually see the money yourself, it is going straight to the fund. Now, for our purposes, we can also assume that generally speaking, the penalties, so there is a penalty to withdraw. In the traditional IRA and also in the employer sponsored the Roth in the traditional 401k, there is a penalty to withdraw, you cannot withdraw before your retirement age. Generally speaking, the penalty is around 10%. Or sometimes you have to pay the money back more. And sometimes the amount is deducted from the amount that you withdraw. So if you wanted to withdraw 100,000, you actually ended up withdrawing 90,000 10,000 is just a penalty just because you wanted to early

withdrawal. So in most of these programs, there is limited access because you cannot withdraw without a penalty until you reach the retirement age, retirement age is generally 59 and a half. And so until you reach 59 and a half, if you wanted to withdraw, there will be a penalty in all of these other than the Roth IRA, the Roth IRA, the Roth IRA, there will be no penalty, because remember, we explained the mechanism of how that works. Along with this, there will also be taxes in your average 401k. And so the taxes are going to be again, if you didn't pay taxes when you first when you first invested, which is the default, most people have a traditional 401k and a traditional 401k is that

you will be taxed when you pull out okay? The difference between the traditional 401k and the Roth 401. Again, the Roth 401 is that you are taxed when you invest so you're not going to be taxed when you pull out the traditional 401. And if you're already confused, then this is just the beginning alone was done. The traditional 401 is the default in most corporations in the United States of America. It is the traditional 401k the traditional 401k you do not pay taxes when you put the money in, you will pay taxes when you pull the money out and you will also pay a penalty if you pull it out before your retirement age. Okay. This is a in a nutshell, the main retirement funds in America

now before we move on one important point

most countries or I should say many countries in the Middle

East, many countries in the Middle East, they have a very different form of retirement.

America does not have an IRA, or an employer sponsored retirement that is obligatory there is nothing that is obligatory in that list. Nowhere in the United States of America, are you forced to enter into a retirement program like a 401k, or an IRA. That's something you choose to do. In many Middle Eastern countries. The government has a special fund that is dedicated for retirement and the government, and especially the government employees, if you're an employee from the government, the government will, whether you like it or not, will automatically enroll you into the mandatory retirement fund, your paycheck will be deducted whether you want to or not, and you do not have any

access to that money until you retire. Now, I'm saying this point because the fact that most scholars

from those lands say is that Zakat is not due on retirement funds. And they are absolutely correct. But I want you to understand, when a scholar in the Middle East says retirement funds are not as accountable, I just invented a word socketable when the retirement funds are not socketable, he is not talking about for one case, he cannot be talking about for one case, if you are not asked whether you want to join the program or not. If it is mandatory, if you never see the money, and it wasn't your choice to not see the money and you have no access to the money. If you wanted it for a medical emergency, you could not get it well, then definitely you will not pay the gods on the money

you never had you never voluntarily gave up and you have no access to. And therefore, all of the fatawa that come from the lands that have mandatory retirement accounts, please understand those fatawa do not and cannot apply to 401 K's or to IRAs, we need people who have looked at these retirement funds. And just because we say the RA is a retirement fund, and in you know the Kuwait or in Bahrain or whatever i'm just giving an example are in Jordan, there's a retirement fund, just because the first word comes from that land says retirement fund, it doesn't mean it applies to the 401k because it is a completely separate reality all together. Okay. So with that caveat in mind, we

need to have fatawa from odema that have looked at the North American contracts that have looked at the reality of this situation. And before we move on, I want you to understand that there is a massive amount of wealth in retirement funds, look at the statistics on the amount of wealth in retirements that according to the investment company Institute, which is one of the main

core Institute's that does this type of research in North America, the total US retirement assets were around $28 trillion in 2020, that is 28 followed by 12 zeros. I want you to understand this, because when you say whether we should or should not give the car, you are talking about a fortune, you were talking about a massive amount of wealth. And you need to think about the repercussions of saying oh nausicaa or Sokka. This is more than the GDP of many countries in the world. And the claim that there should be no Zika, you're you're basically then again, you can already see my sympathies, that there is going to be Zika you are saying that this massive amount of wealth should just be

there. And there should be no Zakat on it whatsoever. Look at the next chart over here that the statistics of retirement in America, and this is by Vanguard, that on average, you see the the the chart over here, the average and the median amounts. And of course, you know, you all should all know the difference between the average and the median that you see over here that the average 401k balance, obviously it increases over time. And when you reach in your 60s around 200,000 is the average 401k. And of course, the median is of course, less than that because obviously you're taking into account different statistics. So there's quite a lot of wealth here. And again, look at

ameritrade, another company that is dealing with a 401 Ks that ameritrade is did a survey of 50 to 59 year olds, and then ameritrade is doing a survey of its own its own users. And they gave these this statistic here that 37% have less than 50,000 saved 16% have 50 to 99,000 saved 32%. One third This is where the majority are one third have around half a million or less than half a million from one to 500,000. So one third of the people who use this particular company when they're in their 50s they have this amount of wealth 6% have more than half a million but less than 1,000,000,008% have more than 1 million in their retirement.

Count. And again this is just to give you a snapshot or a survey of the average statistics again we need to understand what we are dealing with right? We have a principle in the *tier. That you know, understanding the situation is half the problem or half the fatwa, before you give it a fifth, we need to understand what is going on in the country and the world and in the context that you are giving the fatwa in fidelity, which is one of the largest investment actually it is the largest Investment Corporation in North America. And in fact, it holds the largest quantity of 401k accounts over 16 million 401k. Accounts are held by fidelity, and it is consistently ranked as the largest

defined contribution for from this firm, that on average, the average of all of its 16 million accounts was around $103,000 as of last year, so we clearly have an immense amount of wealth again, imagine 16 million times 100,000. Again, we're talking about a massive amount of wealth. Now the question then arises that should xikar to be given on these funds. Now, before we get to this issue, again, I don't need to remind you of the importance of zakat. I don't need to remind you even though we should all be aware of this, there's something that we're all we all know, Zakat is one of the fundamental pillars of our faith. And Allah subhanho wa Taala links Zika and Salah multiple times

many dozens of times in the Quran. I live in New York, a mono salata where you to Jakarta, when did you know Lisa catify a room and it is one of the fundamental economic pillars of our faith. And Allah subhanho wa Taala mentions that one of the goals of Islamic finance is that money not be kept dormant like a lacuna dude, attend Bain and Alinea minicom This is a very key phrase of the haoran. So that wealth doesn't remain just to play thing amongst the rich that they keep on transferring it should not remain just locked up and not you know, utilized. And therefore, of course, the hadith of God, the famous hadith of Zakat that had Ethan side Bahati that whoever does not pay Zika, the very

wealth that he did not pay zakat on will come and punish him in the fire of hell. If he didn't pay zakat on gold, it will be melted and it will be poured on him if he didn't pay zakat on his sheep and his goats and his oxen and his cows, they will trample over him for 50,000 years, etc, etc. The the the the notion of those who are not paying Zakat will be from the people of the fire of help. And very important brothers and sisters when the profitsystem passed away, and a group of early converts decided we're not going to pay zakat, we don't have to pay sick up. And we bought courses, so do consider them to be monitored. Now, of course, I'm not saying that the 401k position is that

I'm saying the importance of ziggu whether a scholar decides that there is a cut or not performed, okay has nothing to do with this incident. So don't conflate the two, but I'm saying the importance of zakka that abubaker. So there's really a lot of wine, he and the unanimous consensus of the Sahaba was that anybody who denies the obligation of Zakah, that person is not going to be considered a Muslim. Zakah is one of the fundamental pillars of our faith. And the purpose of zakat. It's not just half of Allah subhana wa Tada. There's also the hack of the fukada there's also the health of the poor people. And there is nothing that demonstrates this better than the fact that

they attain the orphan, that Zakat is due on the money of the orphan. But the orphan is not going to give his two young so the guardian of the orphan gives you see

a lot of people say oh, but the giving Zakat is difficult on the wealth that we have, and they have 100,000 $150,000 and they say oh, I don't want to, you know, give us a cut on this amount. And we remind them that imagine somebody who's lost his mother and father, imagine somebody who has 3040 $50,000 that the mother father left them, and now a distant cousin is taking care of this young child, this amount. Imagine, we are obliged to give Zakat on the amount that belongs to the orphan every year until the orphan becomes of age, then we hand him over. And if we do not give the car, the author is not sinful. It's not his fault. The Guardian will be sinful, if we are good, because

why? Because there's the help of the orphan. But there's also the help of the poor people. There's the Huck of the poor people, the money is just sitting there doing nothing you should give 2.5% that's all that it is 2.5% we're talking about if the wealth is obviously available, gold, silver whatnot or sitting in a bank account, then you should take 2.5% and then give it to the four or until the orphan comes of age, then he can do as he pleases or she pleases with that amount. Now, when it comes to whether one should give Zakat on for one case or not. There are two main factors and there are two main factors that

We need to take into account how we answer both of these factors will dictate whether we say there is a cut or not. And it is because scholars answer these two questions differently, that they reach different conclusions. Okay. So there are many opinions about Zakat on 401 K. And the scholars that are arguing for all of these various opinions. It it all goes back to how they answer these two questions. What are the two questions? Number one? Do you actually technically have ownership in Arabic is called me key? Yeah. Are you actually the owner of this amount of money? Do you have milkier? Tom, do you have full ownership? Or do you not have full ownership and therefore, because

you don't have ownership, then you're not going to give us a cap on it. Obviously, if you don't own it, then you're not going to give up on it. So any scholar who argued that you do not have milk ears called milk iya, you do not have milk iya. Then they said, obviously, if you don't own it, you don't give Zakat on it obviously, right. That makes sense. So the first question we have to answer is that is their milk key is their ownership over the 401? k? And the second question is that, if we answer No, then call us and the story, the chapter is closed, and we move on, because if there's no ownership, there's no Zika, obviously, the owner, the owner gives the Zakat or the the one who's the

guardian of the owner. So for example, the orphan the orphan does not give Zika The milkier is his but there is a guardian, and the Guardian is responsible to maintain the money to protect the money and to give us a cut on the money. So the guardian of the milkier also has to give us a cut. But the point is that if there is no milkier of the I don't own the money, it's my friend's money my cousin's money, if it's the corporation's money, why would I give us a card? That's not my money in the first place? So is there milkier? The second question that needs to be asked? And this is the more convoluted one is that what

how does one calculate Zakat on long term investments? Okay, that is two separate questions. So the first question, is there milkier? Is there ownership? The second question, what is the correct opinion about how the cost is calculated on long term investments? So, let us break this down with the first question. And then the second question. Now, the first question and that is that issue of ownership of milkier. And the the argument of our teachers have shucks Allah has saw we and of the council and of other great Roma is that there is ownership of the 401k, the person who is investing is the owner. And there should be no controversy over this point. In other words, means key is

established, there can be no controversy over this point. And the issue of milkier is established, it is very clear, why is it clear? Well, because you are the one who signed up for the account, Nobody forced you to get into the 401k, or to start an IRA, nobody can force you in America, if you don't want the 401k, you can tell your employer, I don't want it and you can not get involved, you chose to sign into the 401k, the 401k is in your name, it is under your social security number. And therefore, we have to be very clear here that because it is a voluntary signing up, and because you decided to enter into the contract, and because you had the option of not entering into the

contract, you clearly have the milkier You're the one who took that, that right where that money, and I said invested over there. Now, one of the points that is said is that I don't have the right to help but the sort of habit to sort of there is no right to have the subtle of the sort of means right to do as I please, in other words, help with the sort of who would mean I want to invest in this fund rather than that fund. Okay, now, generally speaking your company or 401k, if you are working for a very large company, they might give you a portfolio you can choose if you're working for a small company, maybe they don't even have that they're gonna force it on you. This is the only

401k that we have. By and large, you cannot choose the individual, you know, stocks and the options that are there for the 401k. It's on a platter and you choose from that platter, if you're able to and sometimes you're not even able to choose. So the point is that you don't have what is called health, but the sort of you don't have the right to do with it as you please It's not like cash in your pocket. It's not like you're checking his bank account it there, there are checks on there. Now I shouldn't say check is going to be confusing. There are certain restrictions on how you can manage that wealth. The response to this is that the fact that you don't have the type of access you do on

your checkings does not negate the fact that you own and an example can be given here that if you owned a house and you gave the house on rent,

And there are tenants living in that house, you do not have the right to barge into that house anytime you want, even though it is your house and you own it, nobody's gonna deny you're the owner. But you have given up some of the rights that are otherwise yours, because you have tenants over here, you chose to give that up. And now you have a different contract where there are tenants and you cannot just barge in there are people living there, it's how long for you to barge into your house in your name, because there are other people living there. So you have given up a type of ownership and ownership. So you have given us a type of disorder, or a type of action that would

otherwise be allowed for you because you have entered into another contract. The point being that the 401 K's are similarly in the same way that you have chosen to give up that right to do with that money as you please. So the fact that there is no hacket, the solar roof does not negate the milkier is what I'm trying to say. In other words, the main key is still yours. The second claim that is said that that shows you that there is normally the other group says that there's no malkia, they say that over Hold on a sec, the amount is not fully accessible, that if there's 100,000 in the 401k, then I don't have access to that 100,000 I have to give the penalty of 10%. And then I have to

give taxes and the taxes might even be 35%. So what I end up with might actually be maybe 60,000 out of the 100,000. So this clearly shows that I don't own the 100,000. And the response to this is that the argument that is being made is that Zakat is due on what is accessible, it is not due on the full amount. Zakat is due on what you will actually be able to get out of it. Therefore the notion that you don't have the full amount available, we say you're absolutely right. And that is why you don't pay zakat on the full amount. But to claim that just because I don't have 100% accent access. This means I don't pay 100% zakat. No, if you have access to 70%, then you give Zakat on 70%. So

once again, this issue is then shown to be null and void that simply because you do not have full access does not negate ownership. The third thing that is said is that the third thing is that it says there is no immediate access, okay, there is no immediate access. In other words, it's not like the money is in my cash my checking, I can just write a check. It's not like the money is in my pocket. Rather, it is restricted. And the response is, the access is not unreasonable, all you need to do is to fill out some forms to wait a week or two, and you will get access to that amount. In other words, the fact that there is a technicality that you will have to wait a while fill out two

forms. And the key point that really shows that you have ownership is that no third party can deny your request to get that money, there's not going to be a middleman that's going to look at your form and say, Oh, is this emergency good enough for me to give you or not? Your boss? Or your employer might say, Are you sure you want to withdraw? And you say yes, I'm sure. Okay, it's your business. This demonstrates you are the owner, nobody can tell you after you fill out the form. I don't think that's a good enough excuse No, you have the right to withdraw, because you have the right to right to withdraw. Therefore, there is no doubt you are the ultimate owner because you have

that access. Now the fact that withdrawing is going to take two forms or three forms you have to fill out you have to get

sign it and throw it on natrona submit it and wait two three weeks. That doesn't mean anything. So what Imagine if you had a bank vault, you know the the physical vaults in the bank, that you had rented a box in a bank and you moved state and you kept your box in the other state. And that box has gold bars in it, are you going to say oh, I have to drive six hours to the other state to get that and I have to go on the on the weekday is closed on the weekends. So because there's not immediate access, I don't have to pay zakat on the gold bars obviously not be the extra hassle of driving to that other state. And opening the box does not absolve you from the necessity to pay

zakat on the gold bars that you owe. Therefore, similarly, the fact that you don't have immediate access does not negate the fact that you actually do have access and and therefore the cost is going to be due every single year. And then the final point that is mentioned and of course this is a summary as with all lectures of mine, you can always go more and more. The final point that is mentioned is that there is a penalty to access this wealth. And so they say that because there is a penalty, so I don't have this is not milkier and the response is that the penalty is from the withdrawal amount and not from your own pocket. In other words, you do not have to pay money to get

your 401k rather the

401k is going to have a 10%, usually as a 10%, sometimes it's more than this, the 401k might have a 10% penalty, and therefore if on paper, it is 100,000, the amount you're going to withdraw is going to be 90,000. And then you're going to pay taxes. And so it might get down to, you know, 60,000, or 70,000. So all of this is something that it doesn't negate the fact that you own the money. The bottom line is that there can be no serious debate over the issue of ownership. And the two strongest points for this are the following. Number one, no one can come between you and that money, or at least a portion of it, if you wanted it. And this is a clear indication that you own the

money. No one can deny you if you wanted it. Yes, there might be penalties. Yes, there might be taxes, but a large amount is eventually going to come to your pocket, whenever you desire it after a week or two, whenever that clearly indicates it is yours. Number two, where you to die, then the money will eventually go to your spouse and your children. So the money will be inherited by your heirs. And this clearly indicates it is your money. If it were not your money, your heirs will not inherit it. Therefore, bottom line, the first question is their milkier of the 401k. And the response is there is clearly a middle tier, and that milkier is enough to warrant that dichotomy

given we now move on to the second question. And this is really where it gets complicated. The second question, which really a specialist can give many hours of lectures on I'm not going to do that, because firstly, I'm not a specialist. And secondly, this is not the point that we're here. But this question really dictates the correct opinion about 401 K, and that is, what is the correct philcare position of Zakat on long term investments. And here is where we get a number of opinions. So what is a long term investment, a long term mutual fund a long term stock. So to be very simplistic, and again, here's the problem. You have to be simplistic and the real world is never

that simple. People who are actually engaged in this might be in the middle of whatnot. But let's be very simplistic scenario A is a person who's investing and monitoring actively, okay, he wants to see when the markets are going to rise or or he invests in, you know, Tesla right now, okay, very hot stock or whatnot. And so he wants to see is it going up going down monitoring day by day, this type of investment, generally speaking, our scholars say that there will be Zakat on the full amount, the day of your annual zakat. So if your zakaat is the first of Ramadan, come first of Ramadan, you will pay 2.5%. Now, suppose you have a mutual fund, and you're giving an example, a

long term, you're not monitoring the amount, and you're not really worried about the rise and fall, you're not intending to sell any time you're saving it for a rainy day, okay, you're saving it for a rainy day. This is what we talked about, when we say there's a cut on long term investment, a long term investment is an investment you do not plan to cash out anytime soon is an investment you're saving for a future event or a rainy day. This is called a long term investment. And it's this is where we find three opinions of the rhythm of our times. The first opinion, which is a very minority opinion, is that there is no cost whatsoever on long term investment. And this is the position of

just a handful of scholars and frankly, without going into a lot of detail, but really there doesn't seem to be it really does not make sense. I mean, you can have millions of dollars just saved in we're talking about obviously an investment, a mutual fund or a stock that you're not planning because we're not talking about cash in your in your bank account. We're talking about an actual investment that you have done a portfolio, a mutual fund a stock that you have put into and you're not monitoring. So one group, a small group of Roadmaster, there's no Zakat on it. And they have the reasons to do so. And I with utmost respect, I strongly disagree that it doesn't make sense. You can

have millions of dollars and you'll say Oh, but I have a long term investment. The other two opinions really have weight, both of them are very

good positions, and both of them are strongly debated in modern councils and depending on where you go with this question, then you get the 401 K's specific answers. The second opinion is the exact opposite of the first and that is that you pay zakat on the full amount and this is and it will be considered to be what is called an Arabic Udo tiara. The cat is due on four different types of wealth. The fourth one the last one being una de Jara Ludo the tiara is your business inventory. What is the business inventory? So

anything that you buy and sell for the sake of buying and selling for the sake of money and wealth, anything that you deal with

You trade with as your daily profession as your means of earning money. This is called robot ijarah. The simple example I can give you is furniture salesman. He owns a furniture shop, right. And so the inventory of the furniture, the inventory of the furniture in the furniture shop, This is Ruth ijarah. And on the day of Zika, he must calculate the cost of the inventory that is at hand and give 2.5% whatever it might be. This is called a root a tiara. Now the furniture in his house knows the cuts. The furniture in his warehouse is a cat. You see the difference between the two, right? Why? Because the furniture in his house is being used and there is no Zakat on the items that use there's

no sticker on your car, there's no cap on your house that you live in, there's no sticker on the furniture that you're using. But if you're a car salesman, and you have a car lot, and you have 50 cars for sale, and it goes up and down, some days you have 40 some days you have 80 some days you have 10, then you just keep on going with the cycle. And the day that you calculate your is that every one of us should have one day of the year that we calculate ours aka the day that you calculators occur on that day, whatever is the quantity of cars you simply calculated out and you give 2.5% if it so happens is 90 cars, you give the carton 2.5% of the wealth of 90 cars. And if it

just so happens is 10 cars, the day before somebody comes in purchases at 90 cars, marshmallow tomato Cola, that's your mother, you didn't do anything intentionally. The point being or alluded to Jarrod is the cuttable by unanimous but not you know misconceived by the four schools of law, the law, etc. It's not that the four schools of law say that it is as a kratovil. So this opinion, the second opinion says that a long term investment takes the ruling of the tea jar, okay, a long term investment, because eventually you want to cash out. So imagine if you're a warehouse dealer, you're a furniture dealer, and you have inventory in your warehouse, and you have inventory in your

showroom. Okay, the fact that you don't have the warehouse in the showroom, doesn't mean that you don't give a cut on the warehouse, it's still inventory, and it is intending to be sold. And therefore, based on this position, the the the the the photo would basically be that there's a cut is going to be due on the on the amount. That is that is there. The third opinion is a little bit more complicated. And this is the position of a number of modern fifth councils of the world also does the position of my teacher, show him North Indian and others. And that is that long term investments, long term investments, we look at the company, and we look at what it is doing. And so

if there's, if the company is dealing intangible goods that are sold, then we give Zakat on that company. And if there's a cat is dealing in services or intellectual property, then there will be no Zakat on that. Now this is a little bit more complicated. So basically, if Google is only doing online services, even though it's not, but I'm saying if Google were to only do online services, and if Tesla were to only be selling cars, according to this position, if you have a mutual fund that has both Tesla and Google, I'm just giving examples. Again, I'm not I'm not advising anybody to do anything, I'm just saying, according to that position, they would say Zakat should be given on the

Tesla amount of the stock and not on the Google if this these caveats were there, I should actually not use exact company names, because you might tell me that Google has this and that so I'm, I'm giving the caveat. If the company deals in actual buying and selling of merchandise of of material, they would say psychiatrists do 2.5%. And if the company is an intellectual company, dealing with with online stuff, dealing with services dealing with like, for example, the hotel, that that it's, it's, it's selling a service, and that is to rent rooms out, right, it's not buying and selling anything, it's selling a service, according to this photo, which is a popular photo as well, that

Zakat will only be due on a percentage of the investment depending on the type of investment that means this group is going to say go through your entire portfolio and separate that which is acceptable versus that which is non marketable. And if you're not able to do that, they will give you a generic percentage. This leads us now to the actual photographers that exist. When I say previous without what I mean, previous to what we are going to decide in the meeting. I was in a meeting we're talking about this. So I'm saying there have been a number of fatawa in this in the 401k. So look at this list over here.

These are actual fatawa from North American scholars, about 401 K's and investment funds, all five of them exist and you know the

There's a big spectrum of opinion. The first first one is that Zakat is due annually on the entire amount, the actual paper amount. So when you get your statement in the mail, and it says your 401k is $100,000 the value this factor will say, you therefore pay $2,500 write that in there, just the paper amount that is far too high. Number one, a number of Roma have said this, but frankly, there are not that many number. The second factor is the fact word that is the fifth council North America and it is your Sala Hawsawi from Amgen, and it is I would say one of the mainstream fatawa and that is that Zakat is due annually on the amount after taxes and penalties Okay, so you get your papers

payment of 100,000 in the mail, you deduct, first and foremost the penalty, then you deduct the taxes for you to cash the entire amount out. What is remaining is your potential wealth that you have access to if you desired to do so, the second factor is that Zakat is due on that amount not on the full amount whatever is the second amount. The third fatwa is that Zakat is due on the Zakat liable assets after taxes and penalties. Now, if you go back to this slide here, you see what I said here that you see these two opinions here right that Zakat is due on the full amount and Zakat is due on the type of investment Okay, depending on which of these two positions you follow. If you

follow the third opinion that Zakat depends on the type of investment you will then follow the third opinion over here. Zakat is due annually on the Zakat liable assets after taxes and penalties. And therefore you will not pay zakat on the amount after taxes and penalties. You will pay zakat on a portion of the assets after taxes and penalties. What is that portion? Technically, you're supposed to calculate each and every refund separately. One of our scholars, one of the football councils of England, estimated 25% and one of our scholars who in North America are do teacher and deer mentorship, ultimate hedge, he estimated one third of this and so he said that one third of the

amount of number two. So there's a big difference between number two and number three, right whatever is number two, he said one third of that you give Zakat on based on this photo over here. The second versus the third opinion is that what is this a cart of long term investment. And Dr. Hartman hedges position is that the cart is dependent on the type of investment. And again, it's a very valid position and I respect that position immensely. But it is not the position of the Council, the full council one with number two. There are other scholars that have basically said there is no is that got to do at all. And then they differed with some of them said until retirement

age, in which case there will be no penalty. And if you choose to remain and keep it in there, you should pay zakat, and you will leave because it's your choice. And there are even some scholars that have said that Zakat is not due until one actually withdraws even after retirement age. And so of course, the difference between four and five should be clear that suppose you are 67 years old, my shoulders debacle and the retirement ages 59 and a half. According to photo number four, you will be paying Zakat for seven years when you're 6061 60 to 60. Every single year you are paying Zakat, even if you did not withdraw, because you have the opportunity to withdraw and you chose not to withdraw

without penalty, and therefore you will be paying zakat. And then the fifth opinion is basically saying you know, if he's 67, and the 401k is still active and he hasn't cashed out, then it's his business and he's not going to pay zakat at all now, with my utmost respect and love to the aroma that said positions four and five. I think that it is simply unfeasible because you are creating what is essentially as a cat shelter. Zakat haven just like there are tax shelters and tax havens right? That you can accrue an immense amount of wealth in the 401k and then shrug your shoulder and say oh, I don't have liquid cash to pay $500,000 amount to the 401k I don't have Zakat money and you

have half a million and the poor guy starving on the street or the poor offer is not taken care of in the poor. You know, Muslim brother or sister doesn't have the house over his head cannot pay the rent. And you're like, Oh, I'm sorry, my half a million 401k I don't want to touch it because I want to cushy retirement, there is a hack for that poor person as well. And I am not that sympathetic. Even though I respect the an AMA and I'm saying they have an argument. They have a basis. It's not just they're coming out of thin air. They have ways to validate this, but I really think that common sense dictates

that you cannot just be sitting on a fortune and say I'm sorry I can't give us a card because I want to have a cushy retirement. If Allah subhana wa tada wanted cushy retirements that your team has the utmost responsibility that his won't be taken care of. But Allah subhana wa tada says, even for the team that his account should be given on behalf of the worry. So how about somebody who has martial arts about a cola a large amount now?

Allah knows best really the the positions that I am very sympathetic towards are both number two and number three, look at your chart here. Number one to me makes no sense at all. And again, respectfully I'm be I'm using harsh terminology, but I utmost respect and love number one and number four, number five just don't make any sense to me. Why? Because number one, how can you pay zakat on the full amount when you don't really you don't own the full amount? You just don't? Because you have a penalty and you have the taxes. So then how can you pay for money that you don't actually own? So to pay zakat on the full amount does not make sense to me, you don't have access to the full

amount you will only pay after the taxes and the penalty. Now, the Roth IRA, for example, that might be you can say okay, the full amount is indeed the full amount that something else. But otherwise, if there are no if there will be taxes and penalties, it does not make sense to pay zakat on an amount that you will never get at that point in time. Number four or five already explained it doesn't make sense to me because every year your retirement fund is going to grow bigger and bigger and bigger, and you will not pay one penny of zakat. And that does not make any sense to me between two and three. Honestly, whichever position you follow, I understand fully and I'm very sympathetic

towards my teacher Shahada mohajirs and position number two, my teacher shucks Allah Hawsawi is on position number Sorry, my teacher Hartman had his opinion number three, and my teachers are always in position number two, and the fifth council North America which is a executive member of the Council North America has decided to go with number two. Zakat is due annually on the amount after taxes and penalties. And I have no qualms in saying that whoever follows position number two will have more Baraka in their lives. Because the more remember, yeah, you're not giving, you know, Zakat to the poor for no reason you're giving it for the sake of Allah subhanho wa Taala. But if that

happens again, giving Zakat will bring about peace and will bring about blessings and will bring about Allah Baraka, there is no question that the second opinion will be more blessings in your mouth will grow because our prophets of the law, why do you send them gave us and he swore by Allah, that giving Zakat does not diminish one's charity. So the conclusion that I have is that the default because the default is that retirement plans in America are optional and voluntary. And you are choosing to get in unlike in many Middle Eastern countries, because there's clear ownership milkier, you clearly have milkier. And because because this is clearly a type of wealth that is meant to

generate more income. This is the point I didn't get into is called an Amanda Nami, which is that wealth generating is not just stagnant while you are generating money from it. And so when you're generating money, therefore, Zakat should be paid annually on the record level amount, which is after taxes and penalty. And to give one example here, so and this is the second opinion of the five, if your retirement fund is worth 100,000, just as a theoretical example, first thing you're going to do, what is the penalty, the penalty is going to be 10%. That brings it down to 90,000. Okay, and then suppose you were to cash in that 90,000 today, and you were to add it to your

balance, or you're sorry, you were to add it to your income. What is your tax bracket? This varies from person to By the way, these are all numbers, you have to decide, obviously, not me, I'm giving standard examples, you have to decide for some people this penalty is going to be 20% for others is going to be 15%. For most it is 10%. For taxes for some people will be 35% and for others are going to be 20%. So I just give a very simple example that suppose the penalty is 10%. And the taxes are 20%. So from 100, we get 90 from nine after 20%, we get 72,000. So the zakaat amount is going to be 1800 on $100,000. That is fairly reasonable. That's not unreasonable. Now, suppose somebody were to

say, oh, but I am, you know, 58 years old. I've been working for 30 years, my 401k is 1 million and there's a cut the amount is 18,000. And I cannot afford $18,000 I don't have 18,000. In liquid cash. We say the following

value colorful low enough sent in Lusaka. Allah is not burden burden to you more than you can bear. You pay what you can, and you write down that in the year 2020 that I paid 10,000 in Zakat

An 8000 is a debt owed to Allah subhanho wa Taala when I cash out, okay, so in the year 2020, you paid 10 I'm just giving an example. Suppose you owed 18,000, you don't have that cash. So you say, We're not asking you to sell your 401k to pay zakat. No, if you don't have your liquid assets, you don't have money. We're not asking you to sell your wife's jewelry, or no, we're not asking you give what you can but write down and record and it will be a debt owed to Allah when you cash out. And so when you cash out a million dollars, okay, now you you deserve to give 8000 that was due for that 2020 year, and then you can add whatever is left. So you pay what you can have that amount, and

whatever you cannot pay, you just make a note of it, and you keep on adding it until you actually do cash out. And then when you do cash out from that, Mashallah large pool, and again, this will only going to apply when you have a massive amount, we already discussed the average 401k 100 150,000, across North America, and that we just calculated for you, you know, 1800 is a 19 $100 roughly and could be less than this, depending on the penalty and the taxes. And that's fairly reasonable. And you don't have to pay in one goal. You can, you can, you know, take it out over a few months. So for example, when I'm Oban comes, you calculate, let's say that your 401k has 2500. And you're like, I

don't have that cash on me. No problem every month, give 500 300 every month give an initial load to either as you give you will see the Baraka in your wealth as well. So to conclude this question, and I know I went into a lot of detail, but I was asked this by so many people and really, it deserves its own lecture. To conclude,

there is no question that Zakat is owed on investments. And to say otherwise really means that a massive fortune, a massive amount of wealth will simply just be accruing more and more wealth, and the half of the fukuro will not be given unto them. I don't agree with the fatwa to say that do not give the cat at all. I used to say 10 years ago that the cash should not be given because I read fatawa from chef Koba we and others, we respect them immensely. But of course, they're fatawa, we're dealing with the Middle East, and they are not dealing with the 401k. And what confuses the people who read including me, it says the fatwa of retirement funds, but the retirement funds they are

talking about are not the 401 K's here in America. And so I don't think that those fatawa can apply over here, I think that it is very clear that there is ownership over the wealth. If there is ownership, Zakat must be given how much they got is given there are two major opinions out there, either you give a cut on the amount that is accessible to you, which is position number two, or you follow the other photo, which is a well known fact when I respect that immensely, and I don't have a problem if somebody were to follow that photo, which would essentially say that you take one third of the amount and whichever federal you follow us for the one based upon the share that you trust.

And between these two, what I say is that the second factor, which is that you pay zakat on the full amount that is accessible to you will bring about more Baraka in your life and more purity of your wealth. And when you give to a lot Allah will give back unto you. May Allah Subhana Allah bless each and every one of us with it is that is Helen and it is that is worse. Yeah. And it is that is Mubarak We ask Allah subhanho wa Taala to continue to increase our risk, but not to make the risk our ultimate goal we ask Allah to allow our risk to be a stepping stone that we can use to earn his pleasure and to gain Gen initial load Todd, who will continue our q&a next week. Until then said I'm

wandering to LA he will probably catch up