How do we apply zakat on savings dedicated for a specific purpose e.g. children education fund (remember, funds like 529 cannot be used for any other purpose), savings to buy a house and avoid mortgage (haram), savings to marry a daughter or son, etc.?
Answer:
Savings is subject to zakat even if it is set aside for a specific purpose, provided that it was retained for one year. For the purpose of calculation of zakat, all savings are to be summed up together – regardless of what purpose these are saved for. The rate of zakat on savings is 2.5%.
One may easily appreciate the wisdom of the shari‟a in this. People will always be able to come up with good justifications for their savings. Had such savings be excluded from zakat, a large number of the zakat payers, if not the vast majority of them, will not incur any zakat, and thus the poor and the destitute will be deprived from their due share of 2.5%. If one compares between how much this small percentage of zakat would lessen the value of the total savings and how much goodness this small amount would bring to the poor and destitute, one will realize that the benefit and utility of the latter would far outweigh the former, for the poor and the destitute are in need of basic necessities of life, such as food, shelter, clothing, medical care, etc.
Though this is not your position alhamdulillah, many people these days put their highest priority on the material well-being of their family and children but lowest priority on their religious obligations. They will do everything they can – spending time and money – for such obligations but their hands shrink and easy excuses are found when it comes to religious dues. This is a serious ghafla on the nafs that we should always guard against.
Allah knows best.
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