Zakat on Retirement Accounts (401k / IRA / Roth)
Three Contemporary Positions
American retirement accounts (401k, Traditional IRA, and Roth IRA) are modern instruments, and the contemporary fiqh disagreement about them is organized into three main positions.
The First Position: Full Value
Zakat is due on the account's entire market value with no deduction for tax or penalty, since these are hypothetical costs that have not actually been incurred, and only real debts are deducted. This position was formulated by Mufti Abdur-Rahman ibn Yusuf Mangera since 2004 and by Dr. Monzer Kahf, and was officially adopted in American Fiqh Academy Resolution No. 11 of 2022. On a $100,000 balance → zakat is $2,500 annually.
The Second Position: The AMJA Method
AMJA's ruling states literally: "The withdrawable amount minus any prescribed tax minus any prescribed penalty equals the zakatable amount. The zakat is due based on a 2.5% zakat rate," where "withdrawable" means what one is permitted to withdraw, even if they have not actually withdrawn it. On a $100,000 balance, assuming a combined tax rate of 40% and an early-withdrawal penalty of 10%, the zakatable pool is $50,000, and zakat is $1,250. AMJA formulated this method in 2008, and FCNA officially adopted it as one of its accepted methods in 2024.
The Third Position: The FCNA Method
Because most retirement-account holders keep them for the long term, FCNA holds that they should be treated like long-term investment stocks: zakatable only on the zakatable percentage, without deducting tax or penalty, since these will not actually be paid. In FCNA's updated example dated February 14, 2026: one million dollars in the VOO fund, at a zakatable percentage of about 24.8%, gives zakat = 1,000,000 × 24.8% × 2.5% = $6,200; in the Shariah-compliant SPUS fund, at about 8.24%, zakat = $2,060. FCNA also made available a second, alternative method for those who intend to liquidate their account soon, treating it as in the second position (value minus 40% tax minus 10% penalty, then 2.5%), which on the million dollars gives $12,500. The two methods may not be mixed within the same calculation.
Key Details: Vesting, Roth, and Inability to Pay
An employer match does not enter the zakatable pool until it becomes vested. Both FCNA and AMJA are explicit on this point. Direct Roth IRA contributions are withdrawable at any time without tax or penalty, and so are zakatable annually by wider agreement; the account's earnings, however, are restricted before age 59.5 and before five years have passed since the account was opened. The rule applied here: what one can access without penalty is zakatable, and what can only be accessed with a penalty has its zakat deferred. When no liquidity is available outside the account to pay the zakat due, FCNA permits paying what one is able to and recording the remainder as a debt owed to God, to be paid upon liquidation, without any further accumulating penalty.