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Individual Development Account (IDA) - Details

Individual Development Accounts (IDAs) are similar to savings accounts and enable recipients to save for "big ticket" items, such as a home, a college education, or to start a business. Money in an IDA account does not affect a recipient's eligibility for Temporary Assistance for Needy Families (TANF) assistance.

States may use IDAs as an incentive for recipients to find jobs and to use their earned income to save for the future. Recipients can use IDAs as long-term investments, without losing eligibility for TANF assistance in the early stages of becoming self-sufficient.

An IDA is an account established by, or for, an individual who is eligible for TANF assistance to allow the individual to accumulate funds for specific purposes.

This remainder of this topic provides additional detailed information about IDAs in a question and answer format. The information is primarily provided for advanced users of WorkWORLD, State policy makers, and advocates who might influence the development and design of IDAs at the State level.

May a State use the TANF grant to fund IDAs?

If the State elects to operate an IDA program, then the State may use Federal TANF funds or Welfare to Work funds to fund IDAs for individuals who are eligible for TANF assistance. The State may exercise flexibility within the limits of Federal regulations and statutes.

Are there any restrictions on IDA funds?

The following restrictions apply to IDA funds:

          A recipient may deposit only earned income into an IDA.

          A recipient's contributions to an IDA may be matched by, or through, a qualified entity.

          A recipient may withdraw funds only for the following reasons:

                   To cover post-secondary education expenses, if the amount is paid directly to an eligible educational institution;

                   For the recipient to purchase a first home, if the amount is paid directly to the person to whom the amounts are due and it is a qualified acquisition cost for a qualified principal residence by a qualified first-time home buyer; or

                   For business capitalization, if the amounts are paid directly to a business capitalization account in a federally insured financial institution and used for a qualified business capitalization expense.

How does a State prevent a recipient from using the IDA account for unqualified purposes?

To prevent recipients from using the IDA account improperly, States may do the following:

          Count withdrawals as earned income in the month of withdrawal (unless already counted as income);

          Count withdrawals as resources in determining eligibility; or

          Take such other steps as the State has established in its State plan or written State policies to deter inappropriate use.

Can people who are eligible for TANF through segregated State funds have an IDA?

An IDA may be established by or for an individual eligible for assistance under the State program operated under the TANF regulations. This means that IDAs can cover individuals who are eligible under the TANF program, regardless of the funding source.

Do all States have IDA programs?

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) gives States the option to fund an Individual Development Account Program. The IDA provision is an optional program, which is subject to State rules within the limits permitted by Federal regulations and statute. Thus, States have the option to fund IDAs with TANF funds for individuals who are eligible for TANF assistance. Welfare to Work funds may also be used to fund these IDAs.

See the Individual Development Account (IDA) - State Differences for information about what is available in your state.

May recipients use money from tax refunds, including EITCs, as contributions to IDAs?

Recipients may make contributions based on any refund that can be attributed to earned income, due either to an over-withholding of employment earnings or an Earned Income Tax Credit (EITC). In fact, recipient contributions may come from any source as long as the total contribution does not exceed his or her earned income.

May Federal TANF funds be used to satisfy the matching requirement of the Assets for Independence demonstration?

No. Federal appropriations law, supported by Comptroller General decisions, prohibits the use of Federal funds from one program to satisfy the matching requirement of another Federal program unless explicitly authorized by Congress. Because the statute establishing the Assets for Independence demonstration does not contain a provision that permits other Federal funds to be used to satisfy its matching requirement, States may not use Federal TANF funds for such a purpose.

May State Maintenance Of Effort (MOE) funds be used to satisfy the matching requirement of the Assets for Independence demonstration?

No. State funds that are expended in order to receive other Federal funds -- outside of Title IV-A of the Social Security Act (e.g., Federal funds available via the Assets to Independence demonstration) -- would not be allowable as State Maintenance Of Effort (MOE) expenditures.

If a State contributes funds in excess of the amount needed to access Federal Assets for Independence demonstration funds, may it count the excess amount as an MOE expenditure?

Yes, a State may count, as MOE, State funds that it contributes above the level needed to access Federal Assets for Independence funds -- as long as those funds are not used as match or as a condition of receiving funds from another Federal program.

May a State use Federal TANF (or State MOE) funds to help pay for an IDA program under which car purchases are a qualified expenditure?

Section 404(h) of the Social Security Act authorizes the use of Federal TANF funds for IDAs. Under this provision, post-secondary educational expenses, a first home purchase, and business capitalization are the only "qualified purposes" for account funds. Similar language governs use of IDA funds under the demonstration program authorized under the "Assets for Independence Act". Thus, neither of these programs permits the use of IDA assets for the purchase of an automobile (except in the limited circumstances where an automobile would qualify as a business capitalization expense).

However, in light of the broad general flexibility under TANF, a State may use Federal TANF funds in other types of IDAs or asset-building programs that permit car purchases as qualified expenditures and support TANF purposes. In other words, a State could use TANF funds to match the savings of a needy parent for any purpose that is reasonably calculated to accomplish one of the TANF goals. The State would have broad discretion in determining the allowable purposes for the savings, the appropriate match rate, and the other conditions and circumstances under which it will match savings.

It is important to note that funds in an IDA account would be excluded in determining benefits under Federal law. Likewise, funds in an IDA established under the Assets for Independence Act (AIA) are excluded. The AIA, as amended on December 21, 2000 excludes funds in an IDA established under AIA for so long as an individual maintains or makes contributions to the account.

If a State operates an IDA under a different authority, e.g., under State law, the IDA assets would not automatically be excluded in determining such benefits. A State would have to separately examine the policies in effect under these benefit programs and see what flexibility they would have to continue benefits to families, notwithstanding the receipt of IDA income or accrual of IDA assets. For example, (1) States may disregard IDA funds from income and resources under their TANF programs; and (2) States have authority to use less restrictive income and resource policies in determining Medicaid eligibility. There are also several provisions in the Food Stamp rules (e.g., the provision of categorical eligibility to TANF recipients) that States might use to protect families from losing these critical means-tested benefits.

A State may also use MOE funds to match the savings of a needy parent for any purpose that is reasonably calculated to accomplish one of the TANF goals. Thus, it may use MOE funds to: (1) provide supplemental funds to an IDA; (2) provide supplemental funds (i.e., funds in addition to any State funds provided to meet cost-sharing requirements) to an IDA program authorized under the Assets for Independence Act; or (3) fund a State-designed program. Under a State-designed program, the State would have broader discretion in determining the allowable purposes for the savings, the appropriate match rate, and the other conditions and circumstances under which it will match savings.

States may establish IDA's for individuals "eligible for assistance" under the State's TANF program. Does this phrase mean that the individual must be eligible for "assistance" or may the individual just be "eligible for assistance" under the broader meanings of that term? Would it be sufficient that the State ensure that eligibility is limited to families that are needy (as defined by the State) and have children living with relatives?

The definition of "assistance" does not have to apply in order for a State to match a family's contribution to an IDA. A State has the flexibility to define "eligible for assistance" for this purpose under the broader meanings of the term. This means that families who receive the benefit of a State IDA matching contribution must be "needy," i.e., financially eligible for IDA benefits under the State's TANF plan, and include a child living with a custodial parent or other adult relative (or consist of a pregnant individual).

Additional Information

A table showing which States have IDAs and for what purposes they may be used can be found in the topic Individual Development Account (IDA) - State Differences.

Numerous policy initiatives at the Federal, State and local levels have contributed to the rapid expansion of IDAs in recent years. The IDAnetwork website policy section provides information about laws, rulings, and legislative proposals related to IDAs. Visit the Policy pages at:
http://www.cfed.org/programs/idas/

A recent report, "Individual Development Account Programming, Policies, and Resources", contains an overview, background material, current IDA trends and policies, recent IDA research findings, the Federal perspective on IDA programs and lessons learned from established as well as newly formed State and local programs. The full text of the joint DOL/DHHS workshop summary report is available for viewing and printing in PDF format (requires Adobe Acrobat Reader) at:
http://peerta.acf.hhs.gov/taevents/pdf/idareport.pdf

The Center for Social Development (CSD) is the "home" of Michael Sherraden, its founding director and author of "Assets for the Poor"--the groundbreaking book which gave birth to the IDA Movement. Their website is a rich source of information and research on IDA's and their impact on the well-being of the poor. Visit the IDA section at:
http://gwbweb.wustl.edu/csd/Areas_Work/Asset_building/IDAs/index.htm

The Association for Enterprise Opportunity (AEO) is a national member-based association dedicated to microenterprise development. Their website provides resources to promote enterprise opportunity for people and communities with limited access to economic resources. An excellent site for those interested in the use of IDA's for microenterprise development. Visit the website at:
http://www.microenterpriseworks.org/

A briefing book, which was developed by the Corporation for Enterprise Development (CFED) in conjunction with the Center on Budget and Policy Priorities (CBPP), aims to explain the treatment of Individual Development Accounts in Federal programs affecting low-income people. Titled "2002 Federal IDA Briefing Book; How IDAs Affect Eligibility for Federal Programs", it is available in PDF format (requires Adobe Acrobat Reader) at:
http://www.cbpp.org/10-29-02wel.pdf

See also:

Individual Development Account (IDA) - Assets for Independence Program

Individual Development Account (IDA) - Overview

Individual Development Account (IDA) - Definitions

Source

Information for this topic was drawn from the Federal Register, Vol. 64, No. 69, April 12, 1999, p. 17896 available at:
http://www.acf.hhs.gov/programs/ofa/tanfru4.htm
and pp. 17844-17845 available at:
http://www.acf.hhs.gov/programs/ofa/tanfru3.htm

Additional information was drawn from the HHS policy website at:
http://www.acf.hhs.gov/programs/ofa/polquest/idas.htm


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