Zakat (2.5% alms giving) and the 4% SWR

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randomguy
Posts: 11295
Joined: Wed Sep 17, 2014 9:00 am

Re: Zakat (2.5% alms giving) and the 4% SWR

Post by randomguy »

arcticpineapplecorp. wrote: Wed May 31, 2023 8:57 pm
that calculator did in fact count home equity, but investopedia says:
A personal residence doesn't count toward wealth and thus, doesn't count when calculating zakat. Property used to generate income, such as a rental or vacation home, does.

source: https://www.investopedia.com/terms/z/zakat.asp
not sure if they're right about that. would be interested to know.
With any of these religious laws, there is going to be a wide range of interpretations with extremists on both ends. As a practical matter you sort of need to follow what your particular group is recommending.

Again you also have to try and decide how much you want to follow the spirit versus the letter. Someone above mentioned buying an annuity. A person who does a strict interpretation would figure out the value of that annuity and pay their zakat. Other people will think that is a legit way of going..
Faisal
Posts: 232
Joined: Sun Dec 18, 2016 5:37 pm

Re: Zakat (2.5% alms giving) and the 4% SWR

Post by Faisal »

Okay so another Muslim here and the OP is making this way too complicated. Significantly more complicated than it has to be.

Zakat is 2.5% of net wealth. Secondly this is religious but there are different categories and ratios for items. Gold and jewelry is weighted differently than income earned. Then investments and property that is owned but not generating income is weighted differently. All debts including mortgages, loans including student loans must be included.

Appreciated unrealized value/gain/loss does not count. You bought your home for 40k its worth 40k for zakat. Even if the market says its 80k, for zakat its what you paid for it.You got to factor that in as well.

Specifically on stocks and bonds here is what I would recommend using: https://www.zakat.org/calculate-zakat-o ... nvestments

In addition, Islam did not include taxes as an avenue of income reduction, but it is generally accepted you take your income post taxes for Zakat.

As someone who has been paying Zakat since I was 18 (41 now),I just use the Islamic-relief Zakat calculator - https://islamic-relief.org/zakat-calculator/

This stuff does not need to be so complicated. Niyyah/Niyat matters.
TN_Boy
Posts: 4134
Joined: Sat Jan 17, 2009 11:51 am

Re: Zakat (2.5% alms giving) and the 4% SWR

Post by TN_Boy »

Faisal wrote: Thu Jun 01, 2023 6:21 am Okay so another Muslim here and the OP is making this way too complicated. Significantly more complicated than it has to be.

Zakat is 2.5% of net wealth. Secondly this is religious but there are different categories and ratios for items. Gold and jewelry is weighted differently than income earned. Then investments and property that is owned but not generating income is weighted differently. All debts including mortgages, loans including student loans must be included.

Appreciated unrealized value/gain/loss does not count. You bought your home for 40k its worth 40k for zakat. Even if the market says its 80k, for zakat its what you paid for it.You got to factor that in as well.

Specifically on stocks and bonds here is what I would recommend using: https://www.zakat.org/calculate-zakat-o ... nvestments

In addition, Islam did not include taxes as an avenue of income reduction, but it is generally accepted you take your income post taxes for Zakat.

As someone who has been paying Zakat since I was 18 (41 now),I just use the Islamic-relief Zakat calculator - https://islamic-relief.org/zakat-calculator/

This stuff does not need to be so complicated. Niyyah/Niyat matters.
Thanks for posting this. That said, I read the linked article it still wasn't that clear to me (I'm just asking out of curiosity, as Zakat does not apply to me). Net worth has a fairly specific meaning in the broad financial world. It's what my house is (best estimate) worth right now, what my stocks and bonds are worth right now, etc. Less any debts I owe.

The linked article seems to imply that the 2.5% for stocks would apply only to dividends, and I suppose capital gains if one sold? How about assets in a 401k? Are the dividends paid by those equities counted?

I am reminded by the article that broad index funds would be unsuitable here due to some of their holdings.
toddthebod
Posts: 5737
Joined: Wed May 18, 2022 12:42 pm

Re: Zakat (2.5% alms giving) and the 4% SWR

Post by toddthebod »

TN_Boy wrote: Thu Jun 01, 2023 10:34 am
Faisal wrote: Thu Jun 01, 2023 6:21 am Okay so another Muslim here and the OP is making this way too complicated. Significantly more complicated than it has to be.

Zakat is 2.5% of net wealth. Secondly this is religious but there are different categories and ratios for items. Gold and jewelry is weighted differently than income earned. Then investments and property that is owned but not generating income is weighted differently. All debts including mortgages, loans including student loans must be included.

Appreciated unrealized value/gain/loss does not count. You bought your home for 40k its worth 40k for zakat. Even if the market says its 80k, for zakat its what you paid for it.You got to factor that in as well.

Specifically on stocks and bonds here is what I would recommend using: https://www.zakat.org/calculate-zakat-o ... nvestments

In addition, Islam did not include taxes as an avenue of income reduction, but it is generally accepted you take your income post taxes for Zakat.

As someone who has been paying Zakat since I was 18 (41 now),I just use the Islamic-relief Zakat calculator - https://islamic-relief.org/zakat-calculator/

This stuff does not need to be so complicated. Niyyah/Niyat matters.
Thanks for posting this. That said, I read the linked article it still wasn't that clear to me (I'm just asking out of curiosity, as Zakat does not apply to me). Net worth has a fairly specific meaning in the broad financial world. It's what my house is (best estimate) worth right now, what my stocks and bonds are worth right now, etc. Less any debts I owe.

The linked article seems to imply that the 2.5% for stocks would apply only to dividends, and I suppose capital gains if one sold? How about assets in a 401k? Are the dividends paid by those equities counted?

I am reminded by the article that broad index funds would be unsuitable here due to some of their holdings.
Zakat, when it was originally implemented, was applied to crops, livestock, and precious metals. Everything since has been wide open to interpretation. Different sects will interpret the requirement in their own way, and the various Muslim countries have their own interpretations as well, and not one is the same as another. There's no answer to your question.
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