Details
Pioneered by Michael Sherraden in 1991, IDAs represent a new approach to combat poverty. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 authorized states to use federal grants to fund IDAs for individuals eligible to receive federal assistance under the act. Most IDAs are offered through partnerships between local non-profit organizations and financial institutions. The non-profit, or program sponsor, recruits participants into the program and provides IDA counseling and financial education. Once recruited, IDA participant open an IDA account with a partnering financial institutions and begins saving in the IDA. Every dollar that is saved in an IDA is matched with donations from government agencies, non-profit organizations and private companies. Participant's savings are usually matched at 1:1 or 1:2 rate. Individual and matching deposits are never co-mingled; all matching dollars are kept in a separate, parallel account. When the IDA accountholder has accumulated enough savings and matching funds to purchase the asset (usually over two to four years) and has completed a required financial education course, payments from the IDA are made directly to the asset provider to complete the asset purchase.
IDA programs differ in eligibility guidelines, however, some of the general requirements for participants are based on a specified annual income level, earnings, net worth and credit history.
Read more about this topic: Individual Development Account
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