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.

Currently, 43 states have some type of IDA policy or initiative, while 29 states have established an IDA coalition. The Corporation for Enterprise Development (CFED) estimates that there are approximately 20,000 accounts and more than 250 programs nationwide.

The Center for Social Development has a more complete account of IDA policy.

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 ($20,420 annually for an individual in 2007); 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.

Federal poverty guidelines can be found at the US Department of Health and Human Services.

RESIDENCY REQUIREMENT

Federally funded state and local governmental IDA programs may verify citizenship or legal residency status. IDA programs supported by non-profits, however, may not require proof of citizenship. Check IDA programs for specific residency requirements.

INTEGRATION WITH OTHER PROGRAMS

IDAs and Supplemental Security Income (SSI)

If an individual participates in an IDA program, his or her benefits may be jeopardized unless the IDA receives funding from block grants under Temporary Aid to Needy Families (TANF) or Assets for Independence Act (AFIA). Under federal guidelines, contributions made by the individual or organization to such an IDA are not counted as income. If an individual is enrolled in a non-federally funded IDA program, contributions may be counted as income, which could then jeopardize SSI and Medi-Cal benefits.

IDAs and Plans for Achieving Self Support (PASS)

A PASS is a program administered by the Social Security Administration for Supplemental Security Income (SSI) recipients. It allows SSI recipients to save money for employment, education, and training without jeopardizing benefit eligibility. An IDA can be part of a PASS plan to start a business or to save for higher education.

A PASS can be used to increase flexibility for a person receiving SSI who wants to participate in an IDA program. Generally, non-TANF and non-AFIA IDAs would be counted as assets in determining SSI eligibility. However, this is not the case if a non-TANF and non-AFIA IDA is approved in a PASS plan. If an individual has a PASS plan and is participating in an IDA program, funds from the IDA can only be used for the specified work goal outlined in the PASS plan.

Individuals already receiving SSI may actually increase their SSI benefit by participating in an IDA program. SSA excludes money placed in a PASS as counting as assets and income. Income placed in a TANF, AFIA IDA, or in a non-federally funded IDA approved in a PASS does not count as income.

For more information about PASS, read “Working While Disabled: A Guide to Plans for Achieving Self Support.”

IDAs and the Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a federal income tax credit for low income working individuals and families. The credit may reduce the amount of federal tax owed. The EITC can help IDA participants reach their savings goals that allow a tax credit to be matched when deposited into the IDA account.

Income and family size determine the amount of the EITC. The rate differs depending on the number of children in the family. The EITC does not generally affect eligibility for any public benefits. For more information about EITC go to the Internal Revenue Service or call 1-800-829-1040.

APPLICATION

Those interested in participating in an IDA program should contact the specific IDA program administrator to find out if the program is currently accepting applications. Many IDA programs have waiting lists. However, while waiting for space to open, some IDA programs may allow an individual to begin the process by taking financial education training and savings planning courses. If there is no program near you, check with the IDA State Coordinator or visit the IDA Network.