How To Qualify For An Individual Development Account
What would you say if I told you that you could put $1000 in savings and it would magically turn into as much as $4000? You’d be incredulous, of course. That is, unless you are familiar with the Individual Development Account (IDA). This savings account option provides matching funds to low-income people who are saving their money for very specific goals. Let’s explore exactly what an IDA is and how to qualify for one.
What Is An Individual Development Account?
At the most basic level, an individual development account is a savings account for low-income individual. However, it is truly so much more than that. It’s a program that assists people with limited income in getting ahead financially. With an IDA, you will learn financial skills, set a savings goal, receive funds to assist you in meeting that goal, and then have the opportunity to utilize those funds to achieve your goal.
Important Things To Know About IDAs
Here are some of the most important things to know if you are interested in these accounts:
- There are many different IDA accounts available, each with their own rules. Therefore, you need to look specifically for those that you qualify for, which is based on a combination of your location and your income.
- IDAs are for people with low-income. The specific amount varies, and sometimes it is based on median income, but typically this is a savings account for people who earn less than 200% of the Federal Poverty Level.
- You have to complete financial literacy training when you get an IDA, which means that you will have the opportunity to learn a lot about money. Some people see this as an annoying hoop to jump through. However, it is actually a terrific chance to learn more about your finances so that you can make your money work for you.
- You will set a savings goal, which is usually capped. For example, your IDA might cap out at $5000 and your savings goal could be to reach that $5000.
- You will put money into this Individual Development Account. Depending on your IDA program, that amount will be matched or exceeded by government funds. For example, if you sign up for an IDA program with 1:1 matching and you put $2500 in then you’ll also receive $2500 in government funding to reach that $5000 goal.
- You can generally use this money for one of three goals: to buy a first home, to obtain college education, or to start a small business. Most IDAs are federally funded. However, there are other programs including privately-funded IDAs. Some of those allow you to save for different goals, such as to purchase a personal computer. Review your options carefully based not only on the criteria about you but also about what you need to get out of the program.
How to Qualify for an Individual Development Account
As aforementioned, the main criteria to qualify for one of these accounts is that you are a low-income individual or couple. Typically, you have to make 200% or less of the Federal Poverty Level amount. Currently, this means that you are likely to qualify if you earn $25,520 or less as a single individual. If you’re part of a couple and together you earn $34,480 or less, then you also qualify.
Do note, however, that each program is different. There are more than 200 different IDAs out there. Some of them are based on median income rather than Federal Poverty Level. Therefore, even if you earn more than the above amount, you might qualify for an individual development account based on median income in your area. Explore the options specific to where you live and work.
Speaking of working, you do have to earn income in order to qualify for most IDA programs. Here are some of the other things that they will look at to determine whether or not you qualify:
- The amount of assets that you have; some programs will not accept you for an IDA if you have assets exceeding a certain amount
- Completion of literacy training, which includes covering topics such as debt management and how to invest your money
- Citizenship status and current location of residence
- Your credit history may be a factor
Make sure that you review all of the criteria before applying to a program. For example, if you have Medi-Cal or SSI benefits, it is important that you only apply for federally-funded IDA program. If you qualify for a privately-funded one, you could lose those critical benefits. It’s always important to read that fine print with an eye towards how your own unique situation comes into play.
Finding an IDA Program
If you believe, based on this criteria, that you might qualify for an Individual Development Account, then the next step would be to find the right program. There are several databases that you can explore to find programs that might be right for you. For example, you can use the Prosperity Now website to search for IDA programs specific to your local area. From there, you can drill down through the requirements to find the program that is right for you.
For example, let’s say that the following criteria apply to you:
- You are a US Citizen and live in California.
- Together, you and your spouse earn more than $34,480 per year but less than 75% of your local median income.
- You are interested in saving to buy a first home.
Therefore, you would need to look for programs specific to your part of California that use a median income calculation for the Independent Development Program. You want to make sure that you’re allowed to use those funds for buying a home.
Moreover, you should explore as many programs as possible to make sure that you get the best match you can. Obviously, if you have the option to receive 3:1 matching instead of 1:1 matching then you should apply for that better program. After all, who wouldn’t want to receive $3000 in matched funds instead of $1000 for every $1000 that you put in? If you are able to qualify for higher matching in your area, based on your income and the other criteria, then it’s just a matter of filing the application, going through the financial literacy training, and beginning to put money into your new savings account.