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An individual development account (IDA) is a type of savings account designed to help low-income individuals build assets and achieve financial stability and long-term self-sufficiency. People use IDAs to save money to start a business, pay for education, or buy a home.
Key Takeaways
- An individual development account (IDA) is designed to help low-income individuals build assets and achieve financial stability and long-term self-sufficiency.
- People use IDAs to save money to start a business, pay for education, or buy a home
- To qualify for an IDA, you may have to complete free financial literacy training, which teaches subjects like money management, debt reduction, and investing.
Understanding Individual Development Accounts (IDAs)
IDAs help people build financial stability in several ways. To qualify for an IDA, an individual may have to complete free financial literacy training, which teaches subjects like money management, debt reduction, and investing.
An IDA will also help make savings go farther: As in a 401(k), the money a person saves in an IDA is then matched (in this case by private or public funds), increasing the total account value. Participants open an account with an approved financial institution and make recurring deposits over a set period of time. The funds are then matched, often at a 2:1 or 1:1 ratio (the exact amount matched varies depending on the state and program).
To qualify for an individual development account, participants must meet specific criteria related to income, assets, and employment.
Program eligibility criteria vary by program, but most require that your income be less than two times the federal poverty level, that you have income from a job, and that you attend financial literacy programs. Other criteria might include meeting certain asset limits, your citizenship or legal resident status, and having credit.
History of Individual Development Accounts (IDAs)
IDAs started in the 1990s as a way to reduce poverty. In the late 1990s, IDAs started to receive federal funding from the Assets for Independence Act (AFIA) and the Temporary Assistance for Needy Families (TANF) program. There are hundreds of IDA programs across the country.
However, the Assets for Independence (AFI) program behind many IDAs was defunded starting in 2017. Since then, individual states have been working to fill in the gaps in funding.
Special Considerations
Having an IDA won't harm your supplemental security income (SSI) benefit, if you receive one. That's because the money you deposit, the matching funds, and any interest you earn don't count as earned income.
Frequently Asked Questions (FAQs)
What Is the Difference Between an IRA and an IDA?
You can make investment decisions with an IRA and move money in and out. With an IDA a trustee controls the money that is deposited and withdrawn.
Can I Take Money Out of my IDA?
Once you reach your savings goal, you can remove money from an IDA with the approval of the trustee.
How Do You Qualify for IDA?
You can qualify for an IDA by meeting income requirements, which are generally a certain percentage of the poverty level in your area, such as 200% of the poverty level.
The Bottom Line
If you have low income and want to build assets, an individual development account (IDA) may be a good tool to help you achieve financial stability and long-term self-sufficiency. Consider consulting with a financial advisor for more guidance on how to reach your financial goals.