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Zakat on 401(k) and Roth IRA in 2026: Guide for US Muslims

For Muslims living in the United States, calculating Zakat on retirement accounts has become one of the most complex financial and religious obligations. Accounts like 401(k), 403(b), Traditional IRA, and Roth IRA sit at the crossroads of Islamic Fiqh and the US tax system, creating confusion about ownership, accessibility, and zakatable value.

As we enter 2026, this challenge has intensified due to:

  1. Updated IRS tax brackets

  2. Inflation-adjusted contribution limits

  3. Evolving scholarly consensus on restricted wealth

  4. Increased reliance on retirement accounts as primary savings

This guide provides a complete, scholar-backed framework for calculating Zakat on US retirement plans in 2026. It combines:

  • Classical Islamic principles of Zakat

  • Contemporary rulings from AMJA and FCNA

  • Real-world tax implications

  • Step-by-step calculations and case studies

Whether you are a salaried employee, high-net-worth investor, or financial advisor, this article gives you a clear, defensible, and spiritually safe method to fulfill your Zakat obligation.

1. Understanding Zakat on Modern Retirement Wealth

1.1 Classical Conditions for Zakatable Wealth

In Islamic law, Zakat becomes obligatory when wealth meets four core conditions:

  1. Complete ownership (Milk Tām)

  2. Growth potential (Namāʾ)

  3. Reaching the Nisab threshold

  4. Held for one lunar year (Hawl)

The main controversy surrounding retirement accounts is complete ownership—specifically, whether wealth that cannot be accessed freely is still subject to Zakat.

1.2 Where Do 401(k)s Fit in Islamic Law?

A 401(k) is not simple cash. It is a legally restricted trust governed by ERISA law, with penalties and taxation attached to early withdrawal.

Islamic jurisprudence classifies ownership into categories:

  1. Milk Tām (Full Ownership): Fully accessible wealth → Zakat unanimously due

  2. Milk Nāqiṣ (Incomplete Ownership): Ownership with restrictions

  3. Māl Dimār (Inaccessible/Lost Wealth): Zakat deferred until recovery

Modern scholars agree that retirement accounts do not qualify as lost wealth. The restriction is regulatory, not physical. Funds can be accessed at any time if one accepts the financial consequences.

 Conclusion: Retirement accounts are zakatable assets, but deductions are allowed for unavoidable access costs.

1.3 Growth (Namāʾ) Removes Any Exemption

Zakat is not due on personal-use assets like a home or car. However:

  1. Retirement accounts are investment vehicles

  2. They hold stocks, funds, and income-producing assets

  3. They are explicitly designed for capital growth

Even during down markets, the nature of the asset remains productive.

Result: Retirement accounts cannot be exempted as personal necessities.

2. Types of US Retirement Accounts (2026)

2.1 Traditional 401(k) and 403(b)

  1. Contributions are pre-tax

  2. Taxes are deferred until withdrawal

  3. Early withdrawal (before 59½) triggers:

  4. 10% penalty
  5. Ordinary income tax

The IRS effectively owns a percentage of the account, reducing true ownership

2.2 Roth 401(k) and Roth IRA

These accounts are funded with post-tax dollars.

Key distinctions:

  1. Roth IRA contributions are withdrawable anytime → fully accessible

  2. Roth 401(k) withdrawals are restricted until retirement events

  3. Earnings may still be taxed/penalized if withdrawn early

Contributions and earnings must be treated separately for Zakat.

3. The 2026 Tax Environment (Critical for Zakat)

Zakat calculations using the Net Accessible Value method depend on current tax rules.

2026 Federal Tax Brackets (Single Filers)

  1. 10%: $0 – $11,925

  2. 12%: $11,926 – $48,475

  3. 22%: $48,476 – $103,350

  4. 24%: $103,351 – $197,300

  5. 32%: $197,301 – $250,525

  6. 35%: $250,526 – $626,350

  7. 37%: Above $626,350

Standard Deduction (2025 Estimates)

  1. Single: ~$15,000

  2. Married Joint: ~$30,000

These figures directly affect Net Accessible Zakat calculations.

4. Three Scholarly Approaches to Zakat on Retirement Accounts

4.1 Method 1: Gross Asset Method (Maximum Caution)

Zakat = Full Balance × 2.5%

  1. No deduction for tax or penalties

  2. Based on strict ownership interpretation

  3. Highest financial burden

Difficult for most Muslims due to liquidity strain

4.2 Method 2: Net Accessible Value (NAV) — Majority Opinion

Endorsed by:

  1. Fiqh Council of North America (FCNA)

  2. Assembly of Muslim Jurists of America (AMJA)

  3. Major Zakat institutions in the US

Core principle:
Zakat is due only on what you could realistically access today.

Zakatable Amount =
Vested Balance − Taxes − Penalties

Zakat Due = Zakatable Amount × 2.5%

This method:

  1. Adjusts for age

  2. Adjusts for state taxes

  3. Reflects real ownership

  4. Prevents hardship (Haraj)

Recommended approach for 2025

4.3 Method 3: Proxy / 30% Rule (Advanced & Conditional)

Used by some scholars for passive, long-term investors.

  1. Assumes only ~30% of assets are liquid/zakatable

  2. Simplifies corporate balance-sheet analysis

Simplified Formula:
Zakat = Total Balance × 0.75%

Valid only if you follow the ruling that passive investments are zakated on underlying liquid assets—not market value.

5. Step-by-Step Zakat Calculation (NAV Method – 2026)

Example:

  1. Vested balance: $200,000

  2. Federal tax: 24%

  3. State tax: 6%

  4. Early withdrawal penalty: 10%

Total deductions: 40%

Net Accessible Value:
$200,000 − $80,000 = $120,000

Zakat Due:
$120,000 × 2.5% = $3,000

6. Roth IRA: A Special Zakat Case

Contributions vs Earnings

  1. Contributions: Fully accessible → no deductions

  2. Earnings: Subject to tax & penalty if withdrawn early

Hybrid Calculation Example

  1. Contributions: $30,000 → Zakat = $750

  2. Earnings (after deductions): $13,200 → Zakat = $330

Total Zakat: $1,080

If over 59½ and account is 5+ years old → Zakat on full balance

7. Vesting Rules: Do NOT Pay Zakat on What You Don’t Own

Unvested employer contributions:

  1. Are conditional

  2. Can disappear if employment ends

  3. Lack true ownership (Milk)

Zakat applies only to vested funds

8. Purification (Tathīr) Before Zakat

If invested in non-Shariah-compliant funds:

  1. Identify impermissible income ratio

  2. Remove it as charity (no reward intention)

  3. Calculate Zakat on the purified balance

Zakat is valid only on halal wealth.

9. 401(k) Loans and Zakat

  1. Loan cash received → fully zakatable

  2. Remaining account → continues to be zakatable

  3. Loan balance should not be deducted as a liability (stronger view)

10. State Taxes & Their Impact on Zakat

Higher state taxes = lower accessible wealth = lower Zakat.

Example on $100,000 balance:

  1. Texas (0% tax): Zakat ≈ $1,650

  2. California (~9.3%): Zakat ≈ $1,417

This reflects real disposable ownership, not favoritism.

11. Final Recommendations for 2025

Practical Zakat Checklist

  1. Calculate only vested balances

  2.  Separate Traditional vs Roth

  3. Apply NAV deductions correctly

  4. Remove penalty if over 59½ or Rule of 55 applies

  5. Purify haram income before Zakat

  6. Pay annually—do not defer

Conclusion

Zakat on retirement accounts is no longer optional, unclear, or ignorable. In 2025, the Net Accessible Value method stands as the most balanced, scholarly endorsed, and financially realistic approach for US Muslims.

By applying this method correctly, you ensure:

  1. Compliance with Islamic law

  2. Protection from hardship

  3. Purification of wealth

  4. Long-term spiritual barakah

Disclaimer: This guide is educational. Always consult qualified scholars and tax professionals for personalized rulings.