Individual Development Accounts (IDA’s): Program Description

PURPOSE

An Individual Development Account, also known as an “IDA”, is a savings account for low-income workers that can be used to fund small-business development, higher education, or the purchase of a first home.

HISTORY

In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) authorizing states to create community-based IDA programs with Temporary Aid to Needy Families (TANF) block grants. This Act allowed individuals to save money without affecting eligibility for public benefits.

IDAs were initially developed for TANF recipients. But now IDAs reach all individuals with low incomes including people with disabilities, immigrants, and youth.

BENEFIT

IDAs were developed to assist low-income individuals in saving earned income for building assets. IDAs can only be used for specific purposes such as developing a small business, investing in college or purchasing a first home. Some programs may allow for savings for other purposes.

With each deposit made by an individual, the IDA program makes an additional deposit called a “match.” IDA programs have different matches which can be anywhere from one to three times the size of each deposit made. For example, in a 2:1 match, each time an individual deposits $25, a matching payment of $50 will be made towards an individual’s savings goal.

Individuals participating in federally funded IDA programs are able to save money and receive a match, without fear of losing Supplemental Security Income (SSI) or Medi-Cal benefits. If an individual has an IDA that receives federal funding from block grants under Temporary Aid to Needy Families (TANF) or Assets for Independence Act (AFIA), savings cannot be considered as assets.

PROGRAM ELIGIBILITY

Each IDA program may have slightly different requirements to participate. To qualify for an IDA program an individual must:

• Be within 200% of the Federal Poverty Level ($19,140 annually for an individual in 2005); and
• Have earned income.

Additional requirements for IDA programs can include:

• Temporary Aid to Needy Families participation;
• Eligibility for the Earned Income Tax Credit;
• Assets requirements; or
• Previous affiliation with an IDA program.

Enrollment in an IDA program requires the individual to take financial education training. IDA programs have different guidelines, so be sure to check with each program for eligibility criteria.