(DailyDig.com) – Sometimes it can feel overwhelming for low-income individuals or families to build assets and find financial independence. Saving additional money for post-secondary education or owning a home may seem like an unattainable goal. However, there are a variety of programs designed specifically for the purpose of helping low-income individuals not only achieve financial stability but also work towards other goals as well. One such type of program is an Individual Development Account.
What is an Individual Development Account?
An Individual Development Account (IDA) is a specific type of savings account designed for low-income individuals and families to simultaneously save and earn additional money towards a specific goal. The account owner makes regular deposits, which an agency or company matches. Funds are generally matched 1:1 (dollar for dollar) but may be more or less, depending on the specific program. The savings account also accrues interest during the duration of the program. At the end of the IDA term, participants can withdraw the funds for their approved use.
What Are the Requirements for an IDA?
There are various IDA programs throughout the country, each with its own specific requirements, but in general, one can expect to meet the following criteria:
- Funds are to be used for the purchase of their first home, their education (or education for a dependent), or to start a business
- Participants must fall within certain federal poverty levels and asset limits
- Participants must have a paying job, as this is how they will contribute their portion of savings
- Participation in financial literacy courses is required, in order to teach about money management, reducing debt, building future wealth, etc.
The sponsor must approve withdrawing funds for the intended purpose. If a participant withdraws money early or uses it for something other than the intended purpose, they risk losing the matched funds.
Where Does the Money Come From?
Participants can find an Individual Development Account and money matching through various places, such as government agencies, private companies, or local charities. Individuals or business donors will generally receive a tax donation when they contribute to IDA programs.
Some states have IDA programs through Temporary Assistance for Needy Families (TANF), so if you are working and also receive TANF benefits, you may qualify.
Benefits of Participating in an IDA
There are a variety of benefits to participating in an Individual Development Account, including:
- They can help low-income individuals reach savings goals – Because deposited dollars are matched, individuals will reach their monetary goal twice as quickly as they would have on their own.
- Funds are not taxable – The matched deposits are considered a gift and not income. This means that individuals do not have to pay taxes on them.
- SSI benefits are not affected – Earnings, matched money, and interest in an IDA do not count as income or resources when figuring out your SSI benefits.
- Financial training – The mandatory financial education and training can help individuals and families learn to manage their bank accounts, reduce debt, organize bills, and other vital financial skills to help improve long-term financial success
Where to Learn More about an IDA
If you or someone you know is interested in owning a home, pursuing their education, or starting a business but are not sure where to start, it could be very helpful to look into an Individual Development Account. Interested individuals should start by contacting their local TANF office for more information. They can provide information on the state IDA program if one is available or direct prospective participants to additional resources or contacts.
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