Halloween and Conformity

Introduction

Halloween is around the corner once again. It is the second largest holiday in the US after Christmas. Every year Muslims are compelled to make the difficult decision of whether to participate in the festivities of Halloween occurring around them or to simply ignore what people are doing with the hope that they will not be pressured by either their children or peers to conform. It’s not an easy situation to be in.
The modern ritual of Halloween contains many aspects of innocent fun and entertainment, especially for children: dressing up in costumes, getting candy from neighbors, and getting to carve pumpkins. Intrinsically, there is nothing wrong with any of these acts, which is why some Muslims participate in the rituals.
But there is another aspect of Halloween that revolves around witchcraft and black magic, evil and superstition. It is common to dress as witches, vampires, demons, zombies, and even Satan [or what people assume he looks like]. School classrooms and work offices are adorned with cobwebs and spiders. Some creative residents decorate their lawns with fake coffins and corpses or hang human skeletons from their doors.
Most people don’t stop to question why these things are associated with Halloween. But Muslims are not supposed to be like ‘most people’. Islam encourages them to think and question, reflect and criticize. Why are people doing what we are doing? Why do they dress up in costumes like this? Where did the idea of going ‘trick or treat’ come from? Why are pumpkins mostly neglected throughout the year but become prevalent during Halloween season? Who came up with the game of ‘bobbing for apples’?

The Origins of Halloween

Researching the origins of Halloween reveals a lot of interesting history. Halloween traces its history back to the ancient Celtic festival of Samhain [pronounced sow-in]. The Celts lived in and around modern day Ireland about 2000 years ago and celebrated their new year on November 1st. On the last day of the year [i.e. October 31st] they believed that dead spirits returned to the world, so their priests would light huge bonfires where people would make sacrifices to their gods.
Later, the Romans conquered the Celtic territory around 43 C.E. They were also pagans and had two festivals: one to commemorate the passing of the dead in late October and the other to honor Pomona, the Roman goddess of fruit. These two celebrations were eventually merged with the day of Samhain.
Centuries later, the Catholic Church established a day to honor all the Christian martyrs who had been killed and called it All Martyrs Day [also known as All Hallows Day]. This was originally celebrated in May but was eventually moved to November 1st to displace the pagan day of Samhain that was still celebrated in the region. Later, another day was added called All Souls Day to include all dead people. The night before All Hallows was called All Hallows Eve and the name evolved to become Halloween. The pagan Celtic ritual about dead spirits mixed with the Catholic one about honoring of the dead.
In colonial America, observing Halloween was originally very limited because the Protestant Christians wanted nothing to do with pagan rituals. In the second half of the nineteenth century, more immigrants from Europe began to migrate to America, many of them coming from Ireland due to the potato famine of 1846. These white immigrants brought the celebration of Halloween with them and it began to spread throughout the country. By the 20th century, Halloween became a little more sanitized and the religious and superstitious aspects of the day were mostly gone. The symbols of ghosts and witchcraft remained but were not widely believed in due to a change in American attitudes. Nonetheless, many neopagans and Wiccans still believe in and celebrate Samhain. Today, Halloween has become commercialized and rakes in about $6 billion every year in the US alone. A fourth of all candy sold throughout the year is purchased for Halloween celebrations.
It is clear that Halloween is a day that has evolved over time, incorporating many different elements and cultures, mostly pagan, into it. The practice of dressing up in costumes originated from the fear of ghosts roaming the earth on Halloween. The Celts believed that if someone wore a scary mask or costume then the ghosts might not recognize them as humans.
To prevent ghosts from coming inside their homes, they use to leave food outside for roaming spirits to eat. The food also served as a ‘treat’ for the good ghosts from their deceased family members. The Catholic Church tried to displace this practice by encouraging people to give out ‘soul-cakes’ so people would pray for the dead instead. During the All Souls Day celebrations in England, poor people would go from house to house begging for food and families would give them some if they promised to pray for their dead ancestors. Over time, the twin practices of leaving treats for ghosts and begging for soul-cakes merged to become ‘trick-or-treating’. The ‘trick’ was added when people began to threatening others that if they do not give some ‘treat’, a ‘trick’ will be played on them through some mischievous act.
The ‘jack-o-lantern’ originated from the practice of carving scary faces into turnips or pumpkins and leaving them outside the house to scare away ghosts. The game of ‘bobbing for apples’ originates from the festival of the Roman deity Pomona, whose symbol is the apple. There were many other customs and superstitions associated with Halloween that have died out with the passage of time.

Symbolism and Secularism

Since Halloween has mostly become a secularized festival in the West, some Muslims argue that there is nothing wrong with adopting it. Knowing the history of Halloween and the origins of the symbols that are still associated with the day, we must be more cautious.
When the Christian ʿAdī ibn Ḥātim accepted Islam, he went to go visit the Prophet Muhammad with a golden cross around his neck. The Messenger of Allah pointed to his necklace and told him, “ʿAdī, throw this idol away.” It is important to reflect on this statement. ʿAdī had already accepted Islam, which meant that he had already abandoned the idea that Jesus is divine. For him, the cross around his neck was only a symbol now. Maybe he liked the way it looked or had become accustomed to wearing it as a fashion piece. Prior to accepting Islam, that cross symbolized belief in Jesus being God and having died for the sins of all people. The moment ʿAdī accepted Islam, the cross that he was wearing immediately ceased to have this meaning, which is why he continued to wear it. Nevertheless, the Prophet made it clear to ʿAdī that this cross was still considered an idol because of what it symbolized, and must be discarded entirely.
Likewise, despite the secularization of many symbols that were once antithetical to Islam and its core message, the advice of the Prophet should continue to resonate with us. Muslims should be proud that they have the insight to trace rituals and customs back to their origins, and ascend beyond the blind conformity of imitating whatever cultural practices and rituals exist in their society. Halloween is a ritual that is yet to be purified of its pagan and satanic symbols and elements. Until this is done, Muslims should be weary.
There is nothing wrong with ordering a pumpkin spiced latte from the local café that only serves this drink around Halloween. Likewise, leaving out some candy to prevent your neighbor’s children from becoming disappointed might be a wise move, depending on where you live, but Muslims should generally avoid observing Halloween as a day of celebration. Instead, they must develop alternatives to where children have fun, get treats, get to wear costumes, and carve out fruits. However, these alternatives need to be stripped of their pagan elements. The Muslim community will continue to wait in anticipation for those creative individuals to arrive who can introduce these alternatives. In the meantime, the corporations who profit from Halloween will continue to develop the holiday in whatever direction will gain them the most profit, without any concern for what symbols are promoted or what impact they have on people.
Muslims must remember that it is okay to be different. Halloween has evolved over time and theoretically has the potential to be stripped of its pagan symbols and made into a purely secular holiday. But until it is, we should discard the superstitious pagan symbols and replace them with something better.

If someone puts me in their will as a bequest [waṣiyyah], can I make a bequest with that wealth to someone else in case I die first?

In the of Allah, the Compassionate, the Merciful.

Summary: No, because you do not own that money yet, and if you die first, that wealth would never have belonged to you at all.

It is allowed, and in some cases, recommended, to leave wealth to a specified person, or cause, after your death. This is known as a bequest [waṣiyyah]. You may not leave a bequest to someone who will already inherit according to Islamic guidelines, such as your children or parents, since that would unfairly increase the shares of specific individuals who are inheriting. Also, the bequest must not be more than 1/3rd of your property, so that the inheritors like children and parents are not deprived of your wealth [estate]. For example, Umar may decide to leave 10% of his wealth after his death to his best friend Ali, since he always helped him throughout his life.
Wealth from inheritance only transfers after the death of a person. For example, in the above scenario, if Umar already wrote the bequest for Ali in his will, that wealth will not belong to Ali until Umar actually dies. If Ali dies prior to Umar, the bequest of Umar is void. So if Ali wanted that wealth to go to his own mother, in case he died first, he cannot write a bequest to that effect, since you cannot transact with wealth that does not belong to you. However, Ali may request that Umar write in his will that if Ali dies first then the wealth will go to his mother. It is Umar’s decision whether to honor that request or not.

[Shaykh] Mustafa Umar
California Islamic University
Fullerton, CA – USA – 2018

Do I Have to Pray Jumʿah [the Friday Prayer] if Eid is on Friday?

Summarized Answer

The majority of Muslim scholars said that Friday Prayer is still mandatory for people who have performed Eid Prayer on the same day. They argued that only people living in isolated areas [who are normally exempted from attending the Friday prayer] coming from out of town to attend the Eid prayer are exempted from the Friday Prayer. This is the opinion of Imams Abū Ḥanīfah, Mālik, ash-Shāfiʿī, and several other scholars.

Nonetheless, there are some scholars who have posited that those who prayed the Eid Prayer are exempted from the Friday Prayer when both fall on the same day. Therefore, anyone who skips the prayer should not be blamed since they are following a respectable scholarly opinion. To understand the issue in detail, see the Appendix.

 

Appendix

Muslims scholars have differed over whether or not Friday Prayer remains obligatory on Eid day. This results from different approaches to dealing with the prophetic reports on the issue. There are four main pieces of evidence which broadly result in two opinions about how to understand them.

A: The verse of the Qur’an stipulates that Friday prayer is an obligation: “You who believe: When the Prayer is called for Friday, hasten toward the remembrance of Allah and leave your business. That is better for you, if only you knew.”[1]

B: There is a report that the third khalīfah, Uthmān ibn ʿAffān, gave permission for some people to skip the prayer: “…then I witnessed the ʿĪd with Uthmān ibn ʿAffān, and that was on Friday. He prayed before the sermon [khutbah], then gave a speech and said: ‘People. This is a day where two ʿĪds have fallen on the same day. So whoever from amongst the people of the outskirts[2] of Madinah wants to wait for the Friday Prayer, they may; and whoever wants to return [home], I have given them permission.”[3]

C: There are reports that the Prophet allowed people to skip the ʿĪd prayer.

  • Zayd ibn Arqam reported that the Prophet performed the ʿĪd prayers early in the day but then offered an exemption for Friday prayer and said, “Whoever wants to may pray it.”[4]
  • “Two ʿĪds were on the same day during the time of Ibn al-Zubayr [a Companion]. He delayed people from coming out until the daylight had spread. When he came out and gave a sermon, he made it long. Then he descended and prayed but the people did not pray the Friday Prayer on that day. This was then mentioned to Ibn ʿAbbās who said: ‘He has acted according to the Sunnah [the way of the Prophet].’”[5]
  • Abū Hurayrah reported that the Prophet said, “Two ʿĪds have synchronized together on this day, so whoever prefers, it may suffice for Friday prayer. We will soon gather.”[6]

D: There is a report that the Prophet himself performed the Friday prayer on ʿĪd day: “The Prophet used to read surah al-Aʿlā and al-Ghāshiyah in the two ʿĪd Prayers and the Friday Prayer. When the day of ʿĪd and Friday would come together on the same day he would still read both of them in both prayers.”[7]

The opinion of Abū Ḥanīfah[8], Mālik[9], and ash-Shāfiʿī[10] is that only people living in isolated areas [who are normally exempted from attending the Friday prayer] coming from out of town to attend the ʿĪd prayer are exempted from the Friday Prayer.

Their reasoning is:

  • Verse A cannot be overridden by any report which indicates something different unless it is of the highest authenticity. It must also be reported by several different people because this is not something that would only be heard/observed by one or two people only.
  • There doesn’t seem to be any rational reason why one obligation should be dropped due to another being performed. This is similar to the way people must still pray Ẓuhr after praying ʿĪd.[11]
  • Report B indicates that the leader of the Muslims exempted only a specific group of people [who normally don’t need to pray the Friday prayer because they don’t live in a city] and none of the Companions objected to his decision. This implies they understood that it was in line with the practice of the Prophet.
  • Evidence C may be general in wording but should be understood as being confined to a specific group of people based on the other evidence.
  • Much of evidence C is of doubtful authenticity.
  • Report D indicates that the Prophet himself prayed it and he obviously had other people with him.

The opinion of Aḥmad ibn Hanbal[12], Ibn Taymiyyah[13], and ash-Shawkānī is that whoever performed the Eid prayer is exempted from the Friday prayer[14], but must still pray Ẓuhr.

Their reasoning is:

  • Evidence C is sufficiently authentic to prove that the Prophet made an exception to the rule in order to make life easier for the Muslims.
  • The sermon for Friday prayer is an addition to the prayer of Ẓuhr. Since one set of sermons was already heard, there is no need for another set later in the day.
  • Friday prayer is a type of ʿĪd and there is no need for two of them in one day. When two acts of worship of the same genre combine together, one of them drops, the way wuḍū’ is not needed when taking a bath [ghusl].[15]

[1] Qur’an 62:9.

[2] The word used is “al-ʿawālī” which refers to people living about one or two miles from the mosque in Madinah. See al-Laknawī, ʿAbdul Ḥayy, al-Taʿlīq al-Mumajjad.

[3] Bukhārī 7:103 #5572, Muwaṭṭa’ 2:249 #613.

[4] Abū Dāwūd 1:281 #1070, Al-Nasā`ī 3:194 #1591. Scholars differed over the authenticity of this report.

[5] Al-Nasā`ī 3:194 #1592.

[6] Abū Dā`ūd 1:281 #1073. Scholars differed over the authenticity of this report.

[7] Muslim 2:598 #878, Nasā`ī 3:112 #1424.

[8] Al-Shaybānī, Muḥammad, al-Muwatta’.

[9] Ḥāshiyah al-Dassūqī 1:391.

[10] Nawawi, al-Majmūʿ.

[11] Ibn Qudāmah, al-Mughnī 2:265.

[12] Ibn Qudāmah, al-Kāfī fī Fiqh al-Imām Aḥmad 1:338, Ibn Qudāmah, al-Mughnī 2:265.

[13] Majmū’ Fatāwā Ibn Taymiyyah 24:211-213.

[14] With the exception of the imām, unless no one shows up.

[15] Majmūʿ Fatāwā Ibn Taymiyyah 24:211.

The Month of Dhul Hijjah – What a Muslim Should Do

What is Dhul Hijjah
Dhul Hijjah is the name of the last month in the Islamic lunar calendar. It starts tomorrow on Wednesday August 23, 2017. It literally means: “the time of Hajj”.

Hajj is the fifth pillar of Islam and constitutes the pilgrimage to Makkah, which every Muslim must perform at least once in their lifetime, if they are able to undertake it. That is what makes this month so special: it is the month in which the Pilgrimage takes place.

The First Ten Days
The first ten days are considered to be special in Islam. Allah created time, and made some times to be better than others, where rewards are multiplied. This encourages people to do more good deeds and renew their zeal to worship Allah. It is similar to a farmer who works extra hard to plant crops during certain seasons, because those times of the year will yield better results. The Prophet said regarding Dhul Ḥijjah, “There are no other days in which actions are better than in these ten days.”[1]

Therefore, it is recommended to increase in good deeds. Fast on as many of these days as possible, like the Prophet Muhammad did.[2] Pray in the masjid more often. Read more Qur’an, and reflect on it. Give more charity. Visit people who are sick. Be extra careful not to gossip, use profanity, or insult others.

Technically, the tenth day is the day of Eid, which is a celebration. It is not allowed to fast on this day. So when ‘ten days’ are mentioned, it actually means the first nine days of the month.

Cutting Hair and Nails
Some scholars hold that a person should not cut their nails or hair during these first ten days of Dhul Ḥijjah. That is because of the report that the Prophet Muhammad said: “Whoever sights the crescent for the month of Dhul Ḥijjah and intends to sacrifice an animal should cut neither his hair nor his nails.”[3] Imam Nawawī says that the wisdom behind this could be that a person who is offering a sacrifice wants to resemble a person performing Hajj since it is about sacrifice, so they refrain from cutting the hair and nails to further the resemblance [since pilgrims to Makkah are also not allowed to cut].[4]

However, there is another report about the Prophet by his wife ʿĀ’ishah that: “…the Prophet sent a sacrificial animal to the Kaʿbah [while residing at Madīnah] but did not abstain from anything [that a person performing Ḥajj would abstain from]…”[5] This report led many scholars to say that it is perfectly fine to cut one’s hair and nails during these days. This is the opinion that I lean towards. See Appendix below for a more detailed discussion about why scholars have differed on this issue.

Fast on the 9th Day
The 9th day of this month is called “the day of ʿArafah” because that is the day the pilgrims performing Hajj gather in the plain of ʿArafah, just outside Makkah. This year, it will take place on Thursday, August 31, 2017. It is highly recommended for people who are not performing Hajj to fast on this day. This is a special fast that the Prophet Muhammad said: “Fasting on the day of ʿArafah is an expiation for the preceding year and the following year.”[6] This meant that the fast is so rewarded that it helps to absolve a person of some of the sins they committed in the past and might do in the future.

So, one day before the Eid celebration, make sure to fast.

Summarized Table of What to Do this Month
1st-8th of Dhul Ḥijjah [Aug 23-30] Recommended to fast and do good deeds
9th of Dhul Ḥijjah [Aug 31] Highly recommended to fast
10th of Dhul Ḥijjah [Sep 1] Eid prayer and animal sacrifice
Appendix
Muslims scholars have differed over whether or not there are any restrictions on cutting the nails or hair during the first ten days of Dhul Ḥijjah. This results from different approaches to dealing with the prophetic reports on the issue. There are two main pieces of evidence which result in three different opinions about how to understand them.

A: The prophetic report narrated by Umm Salamah states: “Whoever sights the crescent for the month of Dhul Ḥijjah and intends to sacrifice an animal should cut neither his hair nor his nails.”[7]

B: The prophetic report narrated by ʿĀ’ishah that: “…the Prophet sent a sacrificial animal to the Kaʿbah [while residing at Madīnah] but did not abstain from anything [that a person performing Ḥajj would abstain from]…”[8]

The first opinion is to affirm that both reports are equally authentic. Report A should be taken in its literal sense, but report B should be confined to only those who send a sacrificial animal, not those who sacrifice an animal within their own city.[9] The scholars who took this approach and said cutting nails and hair is forbidden for a person who intends to slaughter are Aḥmad ibn Ḥambal, Ibn Ḥazm, and Ṭaḥāwī [of the Ḥanafī school].[10]

The second opinion is to affirm both reports as equally authentic and that they are addressing the exact same issue, but understand that report A should not be taken literally as a prohibition, but rather as something disliked. The scholars who took this approach are ash-Shāfiʿī and some of Aḥmad ibn Ḥanbal’s students [such as Abū Yaʿlā].[11]

The third opinion is to prefer report B over report A, because it is of a higher standard of authenticity. Report A is also dismissed since it is contrary to analogy [qiyās] because if a person was supposed to refrain from cutting their nails and hair, they should have also been instructed to refrain from certain clothing, perfume, and intimacy, because that is what people who are performing Hajj must also do.[12] The scholars who took this approach and said there is nothing wrong with cutting the hair or nails are Abū Ḥanīfah and his students, Mālik and his students, and Sufyān al-Thawrī.[13]

[1] Al-Bukhārī
[2] “Allah’s messenger used to fast the [first] nine days of Dhul Ḥijjah…” Abū Dāwūd
[3] Muslim 3:1565, Abū Dā’ūd 3:94, Tirmidhī 4:102, Nasā’ī 7:211.
[4] Sharḥ al-Nawawī ʿalā Muslim 13:138-139. Al-Nawawī mentioned another possible reason as well which I prefer not to mention here.
[5] Bukhārī 7:102, Muslim 2:957.
[6] Muslim
[7] Muslim 3:1565, Abū Dā’ūd 3:94, Tirmidhī 4:102, Nasā’ī 7:211.
[8] Bukhārī 7:102, Muslim 2:957.
[9] `Awn al-Maʿbūd wa Ḥāshiyah ibn al-Qayyim ʿalā Sunan Abī Dāwūd 7:346, al-Istidhkār 4:84.
[10] al-Tirmidhī 4:102, Tuḥfah al-Aḥwadhī 5:99-100, Sharḥ Mushkil al-Āthār 14:141-143.
[11] Tuḥfah al-Aḥwadhī 5:99-100, `Awn al-Maʿbūd wa Ḥāshiyah ibn al-Qayyim ʿalā Sunan Abī Dāwūd 7:346.
[12] `Awn al-Maʿbūd wa Ḥāshiyah ibn al-Qayyim ʿalā Sunan Abī Dāwūd 7:347.
[13] Tuḥfah al-Aḥwadhī 5:99-100, al-Istidhkār 4:84.

Zakah on Access Restricted Investments Like 401(k)s and IRAs

History

In 1978 U.S. Congress passed a Revenue Act which included a provision that allowed employees to avoid being taxed on a portion of income that they decide to receive as deferred compensation, rather than direct pay. The provision was Internal Revenue Code Sec. 401(k). Today, 94% of private employers offer 401(k) plans.

A 401(k) plan is a retirement account that you can only access through an employer. You contribute a portion of your salary to the plan, and if you choose to put that contribution in a traditional 401(k), it isn’t taxed until you withdraw the money, allowing your investments to grow over time without being taxed. (Note: You will pay penalties if you take out the money before a set retirement age, as defined by the plan.) And, as an added bonus, many employers will match some of your contributions.

Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted).It was introduced with the Employee Retirement Income Security Act of 1974 (ERISA) and made popular with the Economic Recovery Tax Act of 1981.

These are popular investments vehicles due to the tax advantages, but also place access restrictions and penalties on a person’s wealth. These tax shelters are usually created by the government to promote a certain desirable behavior, usually a long term investment for retirement so that people do not rely on the government when they are advanced in age.

Fundamentals of Zakah

Zakah is due on wealth that is liable to increase such as cash and sellable goods. It is exempted from personal items such as clothing, vehicles, etc, regardless of how much it may be. The reason behind this is because it is not liable to increase. For example, Muhammad has a personal research library containing $5000 worth of books and tools that he uses to landscape his backyard that are worth $5000. Even though he could sell these items in case he needed to, he has no intention to sell them and owns them in order to use them, thus they are not liable to increase in value due to the state they are in. Ali, on the other hand, owns a store in which he sells both books and tools. Assuming that he had $5000 worth of books in his store and $5000 worth of tools, he would have to pay Zakah on these items because this wealth is liable to increase. The difference between the two scenarios is that Ali purchased these items with the intention to resell them at a profit. Once he sells them, his product will convert to cash, which is zakatable, and most likely he will use that money to purchase more goods for sale. By buying products and selling at a profit, his wealth increases, whereas Muhammad’s books and tools are not intrinsically liable to increase in this way.

Another scenario which highlights financial decisions by individuals is the case of purchasing a car versus leasing one. Uthman and Zayd both have $20,000 each and want to get new cars. Uthman uses his $20,000 to buy a car but Zayd leases the same type of car for $2,000 per year for five years. When Zakah becomes due Uthman will not have to pay on the value of his car but Zayd will pay on the remaining cash every year from the original $20,000 he had, after his lease payments were made. After two years, Uthman could probably sell his car for $16,000 cash. If he did so, he would have to pay Zakah on that cash, but if he does not, then he does not need to pay Zakah. The reason why Zayd, who had originally had the same amount of money and now has the same type of car, has to pay Zakah and why Uthman does not is because Zayd’s cash is [potentially] productive, meaning he can invest it, whereas Uthman cannot because his wealth is stuck in the car he is using for personal reasons.

Investments are like Trade Goods

Many people will purchase something and hold that asset with the hope it will appreciate over time and they will be able to resell it at a profit. Even though they may not have the intention to sell it immediately, their primary purpose is for eventual resale. For example, Hasan purchases a vintage Ferrari vehicle for $100,000 and intends to keep it in storage for five years. He hopes that its value will double over those five years. Since his intention to purchase it was primarily for eventual resale, he will evaluate the market value of the vehicle every year and pay Zakah on it. This is because he would most likely be able to sell it at that market value on any given year.

Tax Shelters, Zakah Shelters, and Intention

When investing, a wise person considers choosing investments that result in the least amount of taxes possible. Taxes are paid to the government and utilizing tax shelters are generally not viewed as being unethical as long as they are legal. These tax shelters are usually created by the government to promote a certain desirable behavior, usually a long term investment.

Sometimes there is a fine line between a purchase being considered an investment or for personal use. In such a case, the intention of the individual, and cultural context, will determine whether Zakāh is due on something or not. For example, Mustafa buys a rare comic book for $50, even though the cover price of the comic was originally $2.50. He bought it because it is his favorite comic book story and has no intention to sell it, and it is common for people in his community to pay high prices for a good story, therefore Zakāh is not due on it. Eventually, he gifts this comic book to his friend Umar, who is not interested in the book itself but keeps it hoping to sell it one day because its value is increasing. Since Umar had the intention of investment, he must pay Zakāh on it.

Items are deemed to be for ‘personal use’ according to the intention of the owner. If someone purchases items mainly with the intention to escape paying Zakāh, they will be responsible in front of Allah on the Day of Judgment. For example, if Hasan wanted to evade paying Zakāh on the extra cash he owns he might think of buying diamonds and store them under the guise of ‘personal use’. However, in reality, his intention for buying them was to avoid paying Zakāh on his excess cash because he knows he could sell them at any time and convert them back into cash. Since his real intention is to sell them whenever he feels the need, they are considered investments or business assets and he must pay Zakāh on them. Maryam, on the other hand, buys some emeralds and rubies to use as decorations in her room. Since her intention to purchase them was for beautification and not as an investment, she will not pay Zakāh on them.

Should Access Restricted Accounts be Zakatable

Some investments have access restrictions. For example, Ahmad gave Talha $5,000 to invest as a partner in a home. Talha told him that he will not have access to the money he invested for three years, but after that he will get his money back plus the profit made from the sale of that house. Ahmad will have to pay Zakāh on this money, after adjusting for current profit or loss if that can be determined, every year. This is because he voluntarily gave up his ability to access that money with the hope of earning more profit than a liquid investment would yield. If Ahmad does not have enough liquid assets to pay Zakāh on the restricted investment, he may defer the payment until he has the money available and will not incur any sin for that. The reason for that is because the original principle when paying Zakāh is that it is taken from the actual wealth itself, but in this case it is restricted and not available.

Other investments like retirement plans have access restrictions and early withdrawal penalties in exchange for tax benefits. In the United States, a retirement plan such as a 401(k) or IRA (Individual Retirement Account) serve as containers to allow investments to grow on a tax-deferred basis. The caveat is that there are restrictions and penalties for early withdrawal of funds in addition to the fact that taxes will be incurred when the money is eventually withdrawn. These added variables complicate Zakāh calculations and has resulted in different rulings by scholars due to their varied understanding of how these financial instruments function and relate to the system of Zakāh:

  • The first view is that Zakāh is due on the entire market value of the account every year. This is the opinion of Dr Muzammil Siddiqi, Shaykh Abdur Rahman Mangera, and the opinion I lean towards. The reasoning is that the person voluntarily put their money into this account. Since the account is owned by the individual the actual amount of capital in the account is given consideration since the investment grows through that full amount. Future taxes or possible penalties are not given consideration since they are not incurred at present and it is unknown if, when, and how much penalties and taxes will be deducted. Most retirement accounts provide incidental access to the invested wealth in cases of emergencies and for other reasons, which implies full ownership and control. For example, Maryam has $250,000 in a 401(k) in which she owns iShares Gold Trust ETF. This is a fund where investors pool their money together and buy physical gold which is kept in vaults scattered around the planet. Maryam will have to pay 2.5% of the value of this investment every year.
  • The second view is that the early withdrawal penalty may be deducted from the value of the account when calculating Zakāh, in addition to deducting the current tax bracket of the individual, since this would be the true amount of unrestricted wealth the person would have if they were to withdraw the funds and incur all penalties on that day. This deduction may amount to about 20-50% of the market value of the account. This is the opinion of Shaykh Salah As-Sawy. The problem with this view is that it takes an incidental circumstance into consideration. Most people never access their retirement accounts early and therefore never incur any penalties, while their wealth continues to grow based on the full market value of the account, which represents their true net worth. For example, Mustafa has $100,000 in a 401(k) brokerage account. He has another $100,000 invested in Microsoft shares which is not in a 401(k). According to this opinion, he would owe $2500 in Zakah on the Microsoft shares [2.5% of $100,000] but would owe only $1500 on his shares of Apple [assuming the early withdrawal penalty was 10% and his tax bracket was 30%]. If Mustafa paid his Zakah from the extra money he had in his checking account, he would have received a massive Zakah deduction, even though this penalty was never actually incurred. Furthermore, if his shares of Apple increased by 10% the following year, that increase would be on the $100,000 and he would thus have $110,000 in Apple shares. Therefore, it does not seem to make sense to deduct a hypothetical cost which is not actually incurred.
  • The third view is that Zakah is not due on a retirement account. Three arguments have been presented in defense of such a view:
    1. Zakah is only due on wealth that is fully accessible to the owner, so retirement accounts are exempt. This argument does not take into consideration two important facts concerning retirement accounts. First, that the person consciously placed their money into this account knowing that it would contain some access restrictions. This was done for the benefit that would accrue from such an account, either through tax breaks or employer matching. Second, it is incorrect to say that a person with a retirement account does not have access to it. For example, if Yusuf had $250,000 in his 401(k) retirement account and had no other wealth, then lost his job and could not pay rent for his house or cover his other bills, he would not become homeless and poor. He would have access to this account and would be able to withdraw the money and continue to live a comfortable lifestyle, thus classifying him as ‘wealthy’ from a Zakah perspective.
    2. Zakah is only due on wealth that is actively managed by its owner, so retirement accounts are exempt. This argument does not consider the fact that the investor was able to choose what type of investments to initially invest in. This could have been mutual funds, ETFs, bonds, or another investment type. Furthermore, the argument fails to consider that there is a money manager who is actively managing the account of the investor, and this was done by choice. When Muslim scholars exempted Zakah from a person who does not have ‘management access’ to their wealth, their concern was that this wealth would fail to be productive due to lack of decision making. However, this is not the case of retirement accounts. It is analogous to the situation where Amr signs a contract with Zayd for five years that his $100,000 will be managed by Zayd and he will make all financial decisions with regard to that wealth. The wealth is being managed, but by someone more qualified, which is why Amr passed investment decision authority over to Zayd in the first place.
    3. Zakah is not due on wealth that can only be accessed with a penalty. This argument does not seem to have any historical basis that I can locate. The reality is that the investor voluntarily signed up to be subject to penalties due to a tax benefit they would receive for having such an account. An analogous situation would be where Ali puts $10,000 every year into a special security guarded underground vault. The company that owns the vault charges a percentage of the wealth every time the wealth is either inserted or withdrawn due to their physical costs of accessing the underground vault. Ali cannot claim that his cash in the vault should be Zakah exempt merely because he cannot access that wealth without a penalty.

It is also important to keep in mind that when a company matches retirement contributions for an employee, Zakāh is only due once they become ‘vested’, which means that a span of time has passed over them such that their ownership is guaranteed and not revocable. If a person does not have enough liquid assets to pay the Zakāh because they have nothing to sell or give away, it may be deferred without sin. For example, Ali invests $7,000 every year into his retirement account which has now grown to $200,000. He must pay $5,000 in Zakāh [which is 2.5% of the $200,000] but he does not have any liquid assets in his account and is not able to withdraw from his retirement account. He may pay his Zakāh late but should consider investing less money for retirement in the future so that he may pay his Zakāh on time.