Most people have probably heard about IRAs (Investment Retirement Accounts), which are special savings accounts allowing people to save for retirement and earn a tax advantage while they save. But there’s also a savings vehicle out there specifically designed to assist low-income individuals save money: the IDA, or Individual Development Account. The first IDA was established in 1993 by the state of Iowa and since then, 33 states have laws governing the operations of IDAs. States, non-profit and for-profit organizations may all administer IDAs.
An IDA is a savings account whereby the investor (who is low-income) deposits a certain amount of money in the account and the account administrator matches the deposit dollar for dollar (or in some states, up to five or six dollars per dollar!). The money for the matching comes mostly from the U.S. government and partly from banks. This is a great savings option because you can deposit a small amount, for example–$200, and get a match of anywhere from $200 to $1200.
To qualify to open an IDA, your income must be below a certain amount, and you must have assets of generally less than $5,000. Withdrawals must be made to achieve a certain goal such as buy a home, pay for education, repair a home, buy a car or start a small business. Usually there’s a one to three year probation period during which you can’t withdraw the matched funds.
To find an IDA program near you, go to http://cfed.org/programs/idas/directory_search/.