Individual Development Account - IDA

DEFINITION of 'Individual Development Account - IDA'

An individual development account (IDA) is a bank savings account geared towards low-income individuals to assist in building assets to achieve financial stability and long-term self-sufficiency. An IDA is used for a predefined purpose, such as starting a business, paying for education or purchasing a home. Account savings are matched by private or public funds.

BREAKING DOWN 'Individual Development Account - IDA'

The individual development program provides financial literacy training that teaches participants how to set up a budget and a savings account, how to repair credit, and the basics of money management. IDAs enable financial institutions to increase program participants' savings rates and obtain financial stability by forming a relationship with a financial institution. Participants are less likely to use risky financial products such as payday loans or succumb to issues such as high credit card debt or foreclosure.

How IDAs Operate

The U.S. Treasury Department provides the majority of the IDA matching funds. Temporary Assistance for Needy Families (TANF) state programs, financial institutions, community organizations, churches, local and state governments, nonprofits, charities, and private donors also provide matching funds.

IDAs work in the same way as a 401(k) retirement account. The program participant deposits money in a savings account, and the funds are matched dollar for dollar up to a maximum of $8 to $1, depending on the guidelines of the specific program. Participants open an account with an approved financial institution and make recurring deposits over time up to a maximum of five years.

Program eligibility criteria vary by program. Participants must receive TANF payments and either be working or meet certain income requirements to open an IDA. Participants must meet additional criteria, such as credit and total assets.

Effects on Federal Benefits

TANF funds can be deposited into an IDA account and do not affect eligibility for federal social service programs. An individual's contributions, matching contributions and interest earned are not considered to be assets asset when determining eligibility or benefits for federal programs such as Electronic Benefit Transfer, Medicaid, Social Security and federal housing assistance programs. Therefore, benefits do not decrease. However, Supplemental Security Income (SSI) payments may decrease for workers without an IDA because the money earned is counted as income and is used to determine SSI eligibility and benefits.

History

IDAs were launched in 1990 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 TANF. In 1993, Iowa was the first state to institute a law to allocate matching funds for IDAs. Thirty-three states, including the District of Columbia and Puerto Rico, have laws or policies that govern the actions of IDAs. Since its inception, the initiative has resulted in over 6,400 small business launches and business development purchases, 9,400 new homeowners, and 7,200 educational expenses.

RELATED TERMS
  1. Social Welfare System

    A social welfare system is a program that provides assistance ...
  2. World Bank Group

    Five international organizations dedicated to providing financial ...
  3. State Medicaid Program

    Health initiatives managed by state governments in conjunction ...
  4. Supplemental Security Income - ...

    A federal program that provides additional income for older and ...
  5. Savings Account

    A deposit account held at a bank or other financial institution ...
  6. Social Security

    A United States federal program of social insurance and benefits ...
Related Articles
  1. Personal Finance

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  2. Personal Finance

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  3. Investing

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  4. Managing Wealth

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  5. Personal Finance

    The 5 Best Alternatives to Bank Saving Accounts

    Find out about some of the most profitable available alternatives to depositing money in a traditional bank passbook savings account.
  6. Markets

    Demystification Of Bank Accounts

    Find out which type of account suits your specific needs.
  7. Retirement

    Programs That Give Cash-Strapped Seniors a Lift

    Dozens of federal and state programs can help seniors who are struggling to pay their bills on a fixed income to better afford their most basic needs.
  8. Retirement

    Retirement Programs That Help Low Income Seniors

    Plans and strategies for building a healthy and satisfying life, even if your retirement income isn't as high as you wish it could be.
  9. Personal Finance

    The New Tax-Free Savings Accounts For the Disabled

    Due to the Achieving a Better Life Experience (ABLE) Act, many people with disabilities will have an easier time financing their lives, starting in 2016.
  10. Retirement

    What Is a Good 401(k) Match?

    The most common employer match is 50 cents on the dollar of up to 6% of your salary. In most cases you should contribute enough to get the maximum match.
RELATED FAQS
  1. I am not a resident of the United States, but would like to be qualified as a registered ...

    Even if you are not a resident of the United States, you may be eligible to take an abbreviated form of the Series 7 exam. ... Read Answer >>
  2. For tax return purposes, is a savings account considered income?

  3. Why is Ireland sometimes referred to as a tax haven?

    Learn why Ireland is a desirable location for corporations, how low the country's tax rate is and what taxation and economic ... Read Answer >>
  4. How does a provident fund compare to U.S. Social Security?

    Find out how provident funds compare to the U.S. Social Security program, including examples of income limits and contribution ... Read Answer >>
  5. What are the major categories of financial institutions and what are their primary ...

    Understand the various types of financial institutions that exist in today's economy, and learn the purpose each serves in ... Read Answer >>
  6. What is the Education Savings Bond Program?

    Learn about the education savings bond program and find out if you are eligible to use your savings bonds for payments toward ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center