The Short Answer
In general, if a person owes Zakat on wealth from past years that he or she never paid, it must be paid, and it is due immediately.
But Zakat on Individual Retirement Accounts (IRAs), like a 401(k) plan, has specific stipulations, and there are varied opinions.
A quick summary of Zakat on retirement accounts?
Yes, your retirement account is Zakatable and must be paid if you have full, free access to the account, and adds it to the wealth-type category of all your currency holdings, and it reaches or exceeds the nisab threshold for money (the current price of Gold Per Gram x 85 on the day it was due). Its Zakat rate is 2.5%.
But importantly, you would only pay its due Zakat on the funds of your 401(k) available to you at that time that you did not include in your due Zakat payment calculation, not on the whole amount of currency you owed Zakat on in that year on that due date.
(note: It is a rule of Zakat that Zakat is not paid on the same wealth twice in the same Zakat year. (See What Are the Rules of Zakat? and Is Zakat Paid on Income or Savings?))
(note: There are juristic opinions about quite stern financial penalties for withheld Zakat payments when one lives in a Muslim society that has organized Zakat assessment, which doesn’t apply here, nor did you withhold your Zakat payment. But you can read about it in Why Muslims Pay Zakat?).
No, your retirement account is not Zakatable if the account imposes restrictions and penalties on your use and withdrawal of its funds.
Scholars, however, differ in their opinions on Zakat due on individual retirement accounts and defined-contribution pension accounts.
Scholars who rule that one does not pay Zakat on an individual retirement account when restrictions and penalties apply to one’s withdrawal of money hold that this form of wealth fails the first test of Zakatability: undivided and absolute right of ownership (see What Requirements Qualify Wealth for Zakat?).
The scholars who prescribe paying Zakat on retirement accounts contend that one can pay it from the portion of its funds one does control, after deducting penalties, fees, and taxes, were one to cash out the account.
(You can read about this in explained detail in Is Zakat Owed on 401(k) Plans and Individual Retirement Accounts?)
What if I did not know I had to pay Zakat on this wealth?
May Allah forgive us for what we do not know. But on matters of obligations in our worship (‘ibadat) and transactions (mu‘amalat), we must seek out this primary knowledge from those who know.
With regard to Zakat knowledge and fulfillment, Zakat Foundation of America has an online Zakat Calculator to help easily and accurately calculate and pay Zakat (go to Zakat Calculator). It is a (maximum-rated) four-star, audited American and international charity offering plentiful, life-saving and -altering ṣadaqah (charity) avenues at home and worldwide (see zakat.org). It is also a noted clearinghouse of well-researched, accessible, reliable, and cross-referenced Zakat articles and easy-to-use Zakat and charity tools.
Pay your Zakat. Use our Zakat Calculator. Learn about Zakat Essentials and our urgent charitable work.
Is delaying Zakat’s payment ever permissible?
Only in extremely limited cases and under very narrow conditions can one delay a due Zakat payment, and these may be unlikely for most Zakat payers.
In general, the Prophet, on him be peace, gave a vital warning to people about paying their Zakat on time.
A person’s Zakat does not remain mixed with his other wealth without obliterating it.”
(Bukhari, Tarikh Al-Kabir, The Large History of Hadith Narrators)
Scholars hold it a sin and forbidden to delay Zakat payment beyond its due date in the absence of these limited legitimate reasons and requirements. Abu Hanifah calls delay “intensely reprehensible,” and the scholars of his school deem it sinful, even if that delay without cause amounts to only a day or two.
You can read more about delaying (and advancing) Zakat payment in Can Zakat’s Payment Be Delayed or Advanced?
May Allah forgive us for our shortcomings and mistakes and grant us fulfillment of His commands and knowledge of our religious rites.