A Savers Guide To Individual Development Accounts

Individual Development Accounts (IDA's) are sponsored savings accounts for low-income earners. These types of accounts are designed to help people leverage their savings for specific saving's goals and make the realization of purchasing a home, car or education more possible. IDA's were established in 1996 by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996: (PRWORA) in part to combat poverty in the United States in addition to building wealth and improving individual financial planning. This article will outline the benefits, qualification and application process for IDA's.

Benefits of Individual Development Accounts

Individual Development Accounts serve a number of useful purposes including 1) building a money consciousness, 2) facilitating prosperity and 3) assisting households meet productive and useful financial objectives. IDA's typically require the savings to be used for specific asset and/or development purchases in the future, some of those assets include the following:

• Home
• Vehicle
• Education
• Business development
• Equipment

IDA's also match funds, meaning either Government agencies and/or Non-profit organizations involved in community development add additional funds into the savings accounts based on qualification, savings goals, and applicable laws and policies. The matching program is better than some 401(K's) and 403(B's) and may consequently be a more beneficial use of limited funds by low income households in the short term as it makes possible cornerstones of financial stability such as home ownership.

In addition to fund matching, some States also allow tax credit for contributions to IDA's, these states include Arkansas, Colorado, Connecticut, Hawaii, Indiana, Kansas, Maine, Missouri, Oregon and Pennsylvania according to the National Conference of State Legislatures (www.ncsl.org) Participants in the Individual Development Account program may also qualify for similar benefits such as Temporary Assistance for Needy Families (TANF), Food Stamps, and Child care assistance without these benefits being included in the income qualification amount..

How to qualify for an Individual Development Account

Each U.S. state and the District of Columbia that maintains and IDA program has its own criteria for qualification. Generally the qualification requirements include an income limit proportional to household size, state or district residency, net worth, and home ownership status. Individuals who qualify for IDA's may also be required to attend workshops, and/or classes to make proper use of the account and goal set using the account. The general qualifications for an IDA are listed below:

• Legal U.S. residency
• Net asset value below $10,000.00
• Individual and household income below State specific values
• Age at or above 18 years

Income and asset qualification involves factoring in liabilities, and other sources of income such as Social Security Income, pension income and/or social security income which may or not disqualify an IDA applicant from eligibility. Receipt of other assistance such as child care and Section 8 housing subsidization may not be factored into the income defining process.

Where to apply for an Individual Development Account 

Each U.S. State may have a number of IDA programs, thus a little research may be required to locate the IDA programs in one's state. A good website to help locate these programs is www.cfed.org which has an IDA directory search form by State. Once a program is located, contacting the program administrator that may be a non-profit organization is the next step. This organization will then require application documentation and verify qualification for the IDA.

Depending on the efficiency of the program, bureaucratic procedure, demand and funding for reach IDA program, application and qualification times may vary. Each organization participating in an IDA program may be able to answer specific questions regarding application requirements, qualification, class scheduling, matching limits, processing time etc. Some examples of organizations that may facilitate IDA programs and as listed by www.cfed.org include community development organizations, social service agencies, and faith based services.

Summary

Individual Development Accounts originated in the 1996 Public Opportunity and Work Reconciliation Act. These Act enabled funding of assistance for the IDA program with the goals of assisting individuals and households with limited income and resources to better attain financial stability. The IDA program is available to persons with limited asset worth after liabilities are deducted, low household income as defined by the State, and residential requirements.

The IDA is helpful in a number of ways and does not always factor in additional sources of government assistance into income calculation. Qualifying and applying for an Individual Development Account involves identification State administrators of the program, eligibility criteria and the application process, and can help individuals and/or households achieve educational, home-ownership, business development and asset related goals.

Sources:

1. http://thomas.loc.gov/cgi-bin/query/z?c104:H.R.3734.ENR:
2. http://www.ncsl.org/programs/econ/housing/IDAshousing05.htm#IDA
3. http://www.cfed.org/focus.m?parentid=2&siteid=374&id=374
4. http://www.wid.org/publications/ida-fact-sheet-policy-implications