How to get started with an individual development account (IDA)

Jerevie Canlas, Ph.D, CFLE​

Did you know that there’s a way for you to earn $2 for every dollar you save? Yes, you read that right! Imagine saving just a thousand dollars but earning an additional $2,000 - and you get a total savings of $3,000.
An Individual Development Account, or commonly referred to as IDA, allows qualified participants to save and get matching savings, usually at a 2:1 or 1:1 ratio depending on where you live and the program you’re participating in. An IDA doesn’t only help individuals’ savings go farther through its matching program, it also provides opportunities for participants to increase their financial literacy. One requirement to qualify for an IDA is for participants to complete free financial literacy classes on subjects such as financial management, saving, debt reduction/elimination, and investing.

​When the IDA program first started in the 90s, it was to help reduce poverty. There are now many IDA programs across the country, and program qualifications and requirements vary from state to state. Policies and procedures also vary depending on the program. However, most programs require that you meet a particular income bracket, and have restrictions as to how participants can eventually use their savings.
 
The AAA Fair Credit Foundation runs the Individual Development Account Program in the state of Utah. Their program’s mission is to “create opportunities and resources for low and moderate income Utahns at or below 80% of area median income increase their personal net worth.” They do this by matching a participant’s savings at a 2:1 ratio. Before starting the program, qualified individuals create a monthly savings goal and identify what they are going to use their savings for. In Utah, these savings goals can only be used towards the purchase of a first home, to start a small business, to pay for higher education (including vocational training), and for assistive technologies for work related activities (i.e., ergonomic keyboards, voice recognition software, and outdoor mobility aids such as wheelchairs). A participant can do more than one cash out if using savings for more than one asset, but funds cannot be used to pay existing debts (i.e., student loans, mortgage, etc.)
 
To qualify, a participant has to be at least 18 years old and a Utah resident. Participants cannot own more than $10,000 in net assets not including one house and one car. A participant’s income cannot exceed the income limits set (see here for income limit requirements). IDA program participants are required to do the following:

1. Complete 6-8 hours of financial literacy classes.
2. Maintain regular contact with a financial counselor.
3. Participate in asset-specific training.
4. Make monthly deposits of at least $15 or earned income.
5. Save in the program for a minimum of 6 months (but not more than 3 years).

 
Once an IDA application has been approved, the participant opens an account with an authorized financial institution within two weeks of approval. This account is owned jointly by the participant and AAA Fair Credit Foundation, and the Match Money accounts are held separately. Participants start saving after an IDA program staff helps them determine a realistic monthly savings amount and a specific purpose for their savings. At the completion of the program, participants will complete a Qualified Withdrawal Request. For example, if a participant plans to use the funds to purchase a home, the participant needs to provide detailed documentation for home purchase such as name of the title company, settlement statement, mortgage approval letter, and a completed housing survey. The Program Specialist and the Executive Director will then contact and authorize the financial institution to write a check to the vendor.
 
Participating in the IDA program is a great opportunity to save for financial goals. The matching program really works well to take one’s savings farther. Most importantly, participation in the program allows individuals to learn financial management skills that can help them become financially independent. For more information on the IDA program, visit faircredit.org.