Explanation of Individual Development Accounts

Individual Development Accounts (IDA) are part of savings programs for low-income families that matches contributions dollar for dollar. The tax-free matching dollars come from government agencies, private funds, local businesses or charities. The IDA savings program is to assist participants with the purchase of an asset that can help bring them financial stability.

Program Guidelines

The IDA program was developed to provide an opportunity for low-income families to build financial security through financial assistance and education. Offered through local nonprofits called sponsoring agencies, some IDA programs will match up to $3 for every $1 that is saved. To prepare the participant for the program, the sponsoring agency will require he attend financial management classes in banking, investing, money management, credit repair, budgeting and setting up a savings schedule. The sponsoring agency will also provide training specific to the asset he will be using the savings toward. Most IDA programs will allow the savings to be used only towards purchasing a home, attending college or starting a small business; however, eligible uses for the savings can include home repair or the purchase of a car, computer or assistive technology. Most IDA programs have a cap on the amount of matched contributions that can go into an account, which is usually between $4000 and $6000. The savings program can vary in length, from 1 to 3 years depending upon the participant’s savings goal.

Eligibility

Most agencies that offer the IDA program will look at the following to determine if a participant is eligible for the program:

 1. Income
 2. Credit history
 3. Assets ($10,000 is the limit, not including primary residence or car)

In addition to meeting eligibility requirements, participants must agree to make monthly deposits to meet the savings goal, use the savings towards an asset, complete a financial management course and attend training specific to the asset goal. If a participant’s income goes up while he is in the program, the participant is still allowed to receive matched contributions on savings.

IDA Account Set Up and Tracking

The sponsoring agency will partner up with a financial institution and open a joint account in its name and the participant’s name. Once the savings goals have been established, the participant will have to make monthly deposits for usually 6 months before being able to make an initial withdrawal from his or her IDA account. The participant must obtain written consent from the sponsoring agency before she can make any withdrawals. The sponsoring agency is also responsible for monitoring the account activity to ensure that the participant is on track for meeting her savings goal.

Savings and Participation

The bank will process all the transactions into and out of the IDA account. The match money never goes directly into the savings account but rather an escrow account. The money becomes available only when the participant has completed training and has met the savings goal. The bank is responsible for issuing monthly account statements detailing the savings, match contributions and accumulated interest. Failure to make the agreed monthly deposits may result in termination from the program. If a participant decides she no longer wants to take part in the program, she can drop out and get the portion she deposited into the account; however, she will not receive the matched contributions.


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