Zakat On Pre-tax IRA Account
The pension amount, as soon as it is made available to the individual , will be subject to 10% production Zakat irrespective of the subsequent treatment of that amount. The subsequent treatment of this amount would vary depending upon the nature of investment being made from that amount. The following two scenarios are being discussed with assumption that the amount of pension has been given to you or you have every right to withdraw this amount, but the amount is set aside in an investment account. These scenarios relate to subsequent treatment of that amount. Scenario 1 : If the amount is in the form of a simple investment and is available for withdrawal any time and has not taken any form of means of production (i.e. in actual form of stocks ) then this amout would be considered a part of wealth ( or assets ) which is used in the calculation of Zakat on wealth subject to 2.5% Zakat on year-end wealth ( or assets ) which are above Nisab. Scenario 2 : If the amount is invested as such that it has taken form of any means of production like actuals stocks and shares or is tied up as an investment not available for withdrawal, then this investment amount would be considered as means of production which would be exempt from Zakat and the return from this investment would be subject to 10% production Zakat if it is above Nisab. And at the time of Zakat on wealth calculation at year-end, this original amount of investment would be exempt from Zakat calculation but returns, if they beomce part of welath at year-end, would also be subject to Zakat on wealth at 2.5%. As you can see from the above explanation that decline in the value of investment has no material impact on the calculation of Zakat. It is the nature of investment which determines its treatment. As far as the taxes are concerned, all form of taxes paid to the government are eligible for deduction from Zakat obligation and if they are more than the Zakat obligation then there will be no Zakat payable for that year. Taxes paid over and above Zakat obligation can also be carried forward for adjustment against future Zakat obligation in the subsequent years. I hope this will clarify the issue.