What Is an Individual Development Account (IDA)?
An individual development account (IDA) is a specialized savings account aimed at assisting low-income individuals in building assets, achieving financial stability, and attaining long-term self-sufficiency. IDAs are utilized to save for various purposes such as starting a business, funding education, or purchasing a home.
Understanding Individual Development Accounts (IDAs)
IDAs offer several ways to promote financial stability. To be eligible for an IDA, individuals may need to complete free financial literacy training, which covers topics like money management, debt reduction, and investing.
Additionally, IDAs stretch savings further through matching contributions. Similar to a 401(k), the money saved in an IDA is matched by private or public funds, increasing the overall account value. Participants establish accounts with approved financial institutions and make regular deposits over a defined period. These funds are then matched, often at ratios like 2:1 or 1:1 (varies by state and program).
Program eligibility criteria vary, but generally require income to be below two times the federal poverty level, earning income from a job, and attending financial literacy programs. Other criteria may include meeting specific asset limits, citizenship or legal resident status, and having a credit history.
History of Individual Development Accounts (IDAs)
IDAs were established in the 1990s as a poverty reduction initiative. In the late 1990s, federal funding for IDAs began through the Assets for Independence Act (AFIA) and the Temporary Assistance for Needy Families (TANF) program. Today, there are numerous IDA programs across the country. However, the Assets for Independence (AFI) program, which supported many IDAs, faced defunding starting in 2017.
In response, individual states have taken on the task of filling the funding gaps to sustain and support IDA programs.
Special Considerations
Owning an IDA will not impact your Supplemental Security Income (SSI) benefit, if you are a recipient. This is because the funds you deposit, the matching contributions, and any interest earned are not considered as earned income for SSI purposes.
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