Zakah on 401k and Retirement Plans and Benefits

Assalaamu Alaikum Mufti,

What is the verdict on Zakat on 401K and/or Retirement plans & Benefits?

1) What is the verdict on money, which is deducted by employer at source?
2) What is the verdict on money, which is actively contributed by the employee on a volunteer basis?
3) Does it make a difference how the money is contributed?

Jazakallahu khairan

Wa’alaykum as Salām wa raḥmatullāhi wa barakātuhu,

1) If the money is not given to the employee at all, nor does he have ownership of it or a choice in it being donated in the investment or not, then Zakāh, will not be compulsory on this amount. (See Fatāwā Raḥimiyyah 5/152, Dār al-Ishā’at). Zakāh on the employer’s contribution will only come into effect when the employee gets access to these funds. Prior to that, it remains the property of the employer; hence Zakāh will be compulsory upon him.

2) If the employee becomes the owner of the wealth and has the choice of whether it should be donated or not, then Zakāh will be compulsory upon him. The underlying reason for this is that the employee becomes the owner of his remuneration (which is invested) immediately. He happily makes the employer his representative (wakīl) in investing his money. The money will fall in the same category of a debt owed to him.

3) The difference as mentioned above depends on whether the money first comes in the ownership of the employee or not.