Does one pay Zakat al-Mal on the money invested in a retirement 401K or IRA?
Please see the answer ‘Permissibility of and Zakat on 401k plan & other securities‘ from the Hanafi source Islamqa.org states:
Since lawful 401K plans are considered business investments, the money invested does not come under the definition of being a debt and thus zakāt is necessary each year as long as the total amount (along with any other savings a person has, minus any debts) meets the zakāt quantum [nisāb] which is approximately $140. One is obliged to pay 2.5 percent on the total value of one’s investments (which includes one’s own investment, along with any amount added by one’s employer that has vested [i.e. the money is now considered the employees since some companies release the amounts contributed by themselves in installments so the employees cannot take the whole amount at once], and any gain or profits that have since been accumulated. In other words the zakātable amount will be the amount a person would consider his or hers at that time even if he was to leave his employment.
and the opinion ‘Zakat on 401K/Retirement Plans‘ at Seeker’s Hub. In summary:
Because retirement plans such as 401K are assets/money owned, they are zakatable. However, zakat will not be due until one has full access to the money, at which point zakat is owed for all the past years (i.e., for each year one owned nisab or more). [Ibn Abidin, Radd al-Muhtar]
It is advisable to go ahead and pay zakat on the plan each year, based on its total value that year, since otherwise it would take much effort to keep track of the yearly amount in retrospect when one finally has access to the money.
Allah knows best.