An Individual Development Account (IDA) is a savings account for low-income workers that can be used to fund small-business development, higher education, or the purchase of a first home. IDAs were initially developed for Temporary Aid to Needy Family (TANF) recipients. Today, many people with low incomes can qualify including people with disabilities, immigrants, and youth.

There are more than 250 IDA programs nationwide. Each one is unique and may have slightly different eligibility requirements and operating procedures. One of the benefits of setting up an IDA account is the matching funding that is provided under the program. Most IDA programs offer a match of one to four times the size of the deposit. So, if you deposit $25 into an IDA with a 3:1 match, the IDA program would contribute an additional $75 towards your savings goal. This makes the program a very effective way to save for a specific goal.

Funding Sources

Funding for IDAs come from a variety of sources including government agencies, private companies, non-profits, and individuals.

If you are receiving disability benefits and plan to enroll in an IDA, it is very important that you find out the funding source for that IDA program. If you enroll in a non-federally funded IDA (one funded by a non-profit or private company, for example), money deposited and matched in your IDA may jeopardize your Supplemental Security Income (SSI) and Medi-Cal benefits.

But if you enroll in an IDA program that is federally funded via Temporary Aid to Needy Families (TANF) or Assets for Independence Act (AFIA) block grants, money deposited and matched in that account will not be counted by SSI or Medi-Cal and won’t impact your benefits from either program.

If you are on SSI or Medi-Cal, it is highly recommended that you enroll in a TANF- or AFIA-funded IDA rather than one funded by some other source.

Program Eligibility

Each IDA program is unique and eligibility requirements may vary from program to program. Generally speaking though, most have the following requirements:

• Your annual income must be within 200% of the Federal Poverty Level ($20,800 for an individual, $28,000 for a couple). In some cases, you may qualify if your income is 65-85% of the median income in your area.
  
• You must have earned income. For an AFIA- or TANF-funded IDA, this means income from work. It doesn’t matter if you’re working full-time or part-time, but you must be earning income from some sort of job. IDAs that are funded by other agencies and organizations may have slightly different earned income requirements and allow for income from other sources.

Some programs may also have asset and credit history restrictions, as well as other eligibility requirements. Once you’re enrolled in an IDA program you must take free financial literacy training. This training varies from program to program but it usually covers topics such as money management, debt reduction, developing a savings plan, credit, and investing.

Median Income

As noted above, some IDA programs accept people whose income is 65-85% of the median income in that area. This means you may qualify for an IDA program, even if your income is more than 200% of the Federal Poverty Level.

Citizenship Requirement

IDA programs that are funded by the federal government may verify your citizenship or legal residency status when you apply. IDA programs funded by non-profits or other organizations may or may not require proof of citizenship. Be sure to ask about specific residency requirements when exploring IDA programs.

IDA Savings Limit

Most IDA programs only allow you to save a certain amount of money in your IDA account—usually $4,000 to $6,000. This includes the money you deposit as well as the matching funds. Once you reach the limit, you won’t be allowed to deposit any more money into the account.

How it Works

Setting up an IDA is a multi-step process. First, you need to decide whether or not you want to pursue an IDA and for what purpose. Second, you need to locate an IDA program in your area. You can use the IDA Directory at www.idanetwork.org to find one near you.

Third, you need to find out as much as you can about the IDA program you are considering. What is the source of the program’s funding? Is it federally funded via Temporary Aid to Needy Families (TANF) or the Assets for Independence Act (AFIA)? What goals does the program fund? While AFIA- and TANF-funded IDA programs only allow you to save for small business development, higher education expenses, and the purchase of a first home, privately funded IDAs may allow you to save for other goals like buying a new computer or car.

Once you have found an IDA program that is suitable for you, you will have to attend an orientation meeting to learn more about it. At some point you will also need to provide personal and financial information to verify your eligibility for the program.

If you are accepted into the program, you will be assigned an IDA caseworker who will assist with your account. You’ll open a savings account with a bank or credit union that is tied to your IDA program. Depending on the program, you may need to commit to depositing a certain amount into your account each month.

Once you’ve reached your savings goal, you’ll be allowed to start withdrawing money from the account to spend on your goal. Most people maintain their IDA accounts for one to three years.

Integration with Other Benefits Programs

IDAs, Supplemental Security Income (SSI), and Medi-Cal

Because Supplemental Security Income (SSI) and Medi-Cal have income and asset limits, working and saving money in an IDA account could jeopardize your eligibility for those programs. If you enroll in an IDA program that is federally funded via Temporary Aid to Needy Families (TANF) or the Assets for Independence Act (AFIA), however, you don’t need to worry about jeopardizing those benefits. Money deposited and matched in such an IDA account will not be counted by SSI or Medi-Cal and won’t impact your benefits from either program.

If you enroll in an IDA program that is funded by some other source though, money deposited into your IDA may be counted as income and could jeopardize your SSI and Medi-Cal benefits.

Be sure to find out about the funding source before you enroll in a particular IDA. If you are on SSI and Medi-Cal, you should enroll in an AFIA- or TANF-funded IDA.

Note: When you enroll in a TANF- or AFIA-funded IDA, be sure to ask your IDA caseworker to write a letter on their program letterhead stating that you can participate in the IDA program without losing your SSI benefits. The letter should specifically mention the “Exclusions Under Other Federal Statutes” clause. Take that letter to Social Security for documentation and keep a copy of it for yourself.

IDAs and Plans for Achieving Self Support (PASS)

A Plan for Achieving Self-Support (PASS) is an SSI program that allows you to set aside money for a specified work goal, such as starting a new career or going back to school. The money you set aside in a PASS does not count against SSI's income and resource limits. This means you can save money towards a career goal in a PASS and continue to use SSI benefits for basics like food and rent.

An IDA can be a part of your PASS plan; the only requirement is that your goal for each program be the same. One of the benefits of using the two together is that it allows you to set up a non-federally funded IDA without jeopardizing your SSI or Medi-Cal benefits. As long as the money you save in your IDA is part of a PASS plan, it will not be counted by SSI or Medi-Cal and won’t jeopardize those benefits. This would not necessarily be the case with other non-federally funded IDAs.

IDAs and Social Security Disability Insurance (SSDI)

SSDI recipients can enroll in any IDA program they choose. There are no restrictions. One thing to consider though, especially if you’re using an IDA to fund a small business: As your earned income increases, and particularly as you start earning above Social Security's Substantial Gainful Activity (SGA) level ($940/month for individuals in 2008), SSDI’s work rules will apply and your SSDI benefit may be affected. For details on how working can affect your SSDI, read DB101’s section on SSDI and Work.

IDAs and the Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a federal tax program that reduces the amount of income tax owed by low to moderate income workers and families. Money received from an EITC can be deposited into an IDA and matched, helping the participant reach their savings goal more quickly than they might otherwise.

How to Apply for an IDA

If you are interested in starting an IDA, contact an IDA program in your area to find out if they are currently accepting applications. Some programs may have waiting lists. Even so, you may be able to begin the process by taking financial literacy training while waiting for a space to open up. You can use the IDA Directory at www.idanetwork.org to find one near you.

Sources

CFED provides a variety of information on IDAs, including an overview of the program, a 4-page fact sheet, and a national IDA Directory at www.idanetwork.org.

If you have trouble finding an IDA program in your area, or if you have questions about setting up an IDA, contact the Access to Assets Program at the World Institute on Disability (phone: 866-723-1201 or email: tom@wid.org). Access to Assets also provides a Question and Answer Fact Sheet that can serve as a guide for IDA consumers with a disability. Disclosure: The World Institute on Disability is a partner in Disability Benefits 101.

The Center for Social Development at Washington University in St. Louis provides extensive information on asset building, including details on IDAs.

The Finance Project’s Economic Success Clearinghouse provides information and technical assistance on welfare, workforce development, IDAs, and other human services.