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What is an Individual Development Account?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 15 April 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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An individual development account, or IDA, is a form of matched savings account that is available to individuals and families who have annual incomes under a specified amount, and who meet other established criteria, such as overall net worth and credit rating. Essentially, any funds that are put into a qualified savings account each month are matched by funds from a sponsoring entity, usually a non-profit association or a financial institution. Accounts of this type are available in a number of countries, notably Canada, the United Kingdom, and the United States. Often, there are limitations on what the savings can be used to purchase ultimately, with those limitations put in place by the sponsoring organization.

The concept of the individual development account is based on the principle of asset-based egalitarianism, which holds that a conscious redistribution of resources can help bring about equality within a given society. With this application, the idea is to provide households that are considered poor by the standards of the nation where they reside to better their situations by a combination of saving toward specific goals, and having an outside source save along with them. The ultimate goal is for individuals who participate in the IDA to improve their circumstances, and thus enhance their ability to contribute to the society in ways that would not be possible otherwise.

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In most cases, an individual development account requires that any use of the funds in the account go toward a few specified purposes. The account holder may use the savings to purchase a first home. Any funds in the account may also be used to finance a college education or technical training at an accredited vocational or trade school. Proceeds from the account may also be used to launch a small business. There are some examples of IDAs that allow some additional expenditures that are considered to allow individuals to better their circumstances, such as the purchase of a first computer or automobile, or repairs on a home. There are even some sponsors that promote the individual development account as a means of saving for retirement, with the goal being to lessen the reliance of retirees on government sponsored programs, while still increasing the chances of allowing the seniors to enjoy an equitable standard of living.

Funding for an individual development account can come from a number of sources. The matching funds may originate with a government program, a combination of donations from private sources, such as companies within a given community, or non-profit organizations that are dedicated to the cause of minimizing poverty in the wider community. While most plans of this type are structured to provide matching funds at a rate of one to one, there are some programs that will contribute two units for every unit saved by the account holder.

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