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Once again we are asking for your help, that we may help those less fortunate than ourselves. Each day we wake up we are face with a series of choices. Many of those choices will have a great effect on just how our live play out in the day, weeks , and months to come. Today I would like to speak with you about a decision that will have an everlasting effect in the hereafter. It is one that will have double reward, one you will it fulfill your obligation of paying Zakat on the wealth that Allah has given you and two you will be helping a needy brother or sister meet their basic needs on a daily basis.
We are constantly looking for way that we may get closer to Allah. ..
8.0 What is Nisab?
The amount of zakatable wealth/asset which makes one liable for paying zakat is called Nisab. In other words any person who has Nisab in his possession for one lunar calendar has an obligation to pay Zakat. Similarly if a person does not have Nisab in his possession he/she can take Zakat.
2.0 What is the meaning of Zakat?
Zakat literally means "to be clear, to grow, to increase." It comes from the root letters za, kaf, ya, which has several meanings: to be clean, to pay the obligatory charity, to be pure, innocent, to be better in purity, and to praise oneself, to justify. It has been used in the Quran to mean all of these things. It can also be considered a form of sadaqah (charity), given to the poor.
11.0 What is the rate of zakat which was fixed by prophet (pbuh)?
If wealth is above nisab over one year, the prophet (pbuh) fixed the rate of zakat which is 2.5% or (1/40) which is $2.50 on every $100.
4.0 What are zakatable wealth/assets?
Business merchandise, gold, silver, cash, stocks, mutual funds, stock options, 401k-IRA, livestock, buried precious metals or minerals, or agricultures produce are zakatable wealth/assets.
Lump Sum Payments in Terms of Compulsory Pension and Provident Funds
Zakat is payable on lump sum payments received by an employee upon retirement, or by his dependent, if the money is held by such recipient for a period of one year as from the date of receipt thereof/ No Zakat is payable for preceding years. Take the following example: An employee under a compulsory pension fund receives a lump sum payment of $100,000 upon retirement on 1st January 2005. His Zakat year ends on 1st January 2006. If the lump sum has not been spent at the end of Ins Zakat year, he will pay Zakat thereon, namely 2.5% of $100,000 = $2,500. On the other hand, if he had used the money to buy a house before the end of his Zakat year on 1st January 2006, no Zakat will be payable thereon. The aforegoing applies to compulsory pension and provident funds in the sense that the employee is obliged as a term of his employment to become a member of such fund and make prescribed contributions.
Retirement Plans (401K, IRA, etc.)
Fund withdrawals from such plans triggers early withdrawal penalty (in case the funds are withdrawn before one reaches the retirement age) and taxes. Hence, Zakat on 401K, IRA and other retirement plans will only be due when the funds are received. At that time the person must pay the Zakat of all the past years, and not just one year, i.e. ever since he became the owner of Nisab and ever since this money reached that limit. This will require a lot of effort in keeping track of each year's Zakat-able amount until the funds have been withdrawn. Hence, it is advised by the scholars to pay Zakat on the 401K, IRA plans, etc. plans yearly, to avoid miscalculations after several years of accumulation.
AND ALLAH KNOWS BEST.