There are several perspectives on this issue, all assuming that this money has reached the Nisab (the minimum amount of wealth required for Zakat to be due):
The first perspective states that there is no Zakat due on these types of wealth because one of the conditions for Zakat to be obligatory is that the wealth is in the possession of the owner, and according to this perspective, the ownership of this type of wealth is limited and restricted. Therefore, according to this view, Zakat is only due on this wealth when it is received and after a lunar year has passed over it.
The second perspective is similar to the first, except that Zakat is due on this wealth immediately upon receipt, based on the previous year. This is because, according to this view, the ownership of the wealth is established in the last year before the receipt of the wealth.
In both perspectives, the Zakat payer is required to pay 2.5% on the total amount of wealth that has reached the Nisab.
The third perspective states that Zakat is obligatory on this wealth if it reaches the Nisab every lunar year. The proponents of this view suggest that the owner of the wealth should calculate the amount of money they have saved in their retirement account and assume that they withdrew this money on the day of Zakat. They should then subtract any taxes or fines from this amount and add the remainder to their other wealth. Zakat at a rate of 2.5% should be paid on the total amount if it reaches the Nisab. This should be done every year.
The fourth perspective is adopted by scholars such as Muhammad Abu Zahra, Abdul Wahab Khallaf, Abdul Rahman Hassan, Dr. Al-Qaradawi, and others, and it is the opinion that we issue our fatwa on. The essence of this view is that retirement savings are similar to public funds in one aspect, and different in another. They are conditionally owned and restricted, and are considered a type of trust that cannot be used until the end of a specific period. Therefore, it is not appropriate to treat them as accumulated or earned wealth. Nevertheless, they are considered a type of preservation and accumulation due to the condition of the future and their restriction, and therefore, they generate income.
Therefore, previous scholars exerted effort –ijtihad- in relating this type of wealth to similar sources of zakat, finding that it resembles agricultural land that cannot be sold on its own, but instead yields a harvest when invested while remaining the property of its owner.
Therefore, these scholars ruled that Zakat on this type of wealth is similar to Zakat on agricultural land, but in this case, Zakat is not paid on the principal amount, but rather on the profits only. For example, if a person has $10,000 in their retirement account and their Zakat cycle starts from Ramadan to Ramadan, and they earned a profit of $1,000 in the new Ramadan, according to this view, they should deduct administrative expenses from the $1,000 profit and pay Zakat of 10% on the remaining amount, which is Zakat on crops. If they did not earn any profit, they do not pay Zakat. If their Zakat cycle is from January to January, they would pay 10.03%, as the solar year is longer than the lunar year.
This view is the one we prefer and choose for the fatwa. And Allah knows best.
Fatwa by Dr. Khālid Naṣr