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Individual Development Accounts (IDAs):
Background and Current Legislation for
Federal Grant Programs to Help Low-Income
Families Save
Gene Falk
Specialist in Social Policy
September 28, 2010
Congressional Research Service
7-5700
www.crs.gov
RS22185
CRS Report for Congress
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repared for Members and Committees of Congress
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Individual Development Accounts (IDAs)
Summary
Individual Development Accounts (IDAs) are savings accounts to help low-income families and
persons save for specified purposes, usually education, purchase of a home, or to start a business.
Current IDA programs match an individual’s contributions, much like retirement 401(k) accounts.
The Assets For Independence (AFI) Act, enacted by Congress in 1998, specifically authorizes
IDA demonstration programs. Authorization for the AFI programs expired at the end of FY2003,
though Congress continued to appropriate money for the program. P.L. 111-117, the omnibus
appropriation bill for FY2010, provides $24.025 million for AFI programs. AFI has been funded
at that level since FY2008.
States are also given authority to use funds from the Temporary Assistance for Needy Families
(TANF) block grant to fund IDA programs. The Deficit Reduction Act of 2005 (P.L. 109-171)
“reauthorized” TANF through FY2010, making no changes to TANF’s rules for IDAs. This report
will be updated to track legislative or appropriations activity.
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Individual Development Accounts (IDAs)
Contents
Introduction ................................................................................................................................ 1
Assets for Independence Act Demonstrations .............................................................................. 1
What Types of Organizations May Operate AFI IDAs?.......................................................... 2
Who May Participate in AFI IDAs?....................................................................................... 2
What Are the Contributions and Match Rules in AFI IDAs? .................................................. 3
For What Activities May a Participant Withdraw Funds from the IDA? ................................. 3
Can Participants Make Withdrawals for “Emergency” Expenses? .......................................... 3
What Additional Benefits and Services are Offered in an IDA Program?................................ 4
AFI Evaluation Requirements ............................................................................................... 4
TANF Program IDAs .................................................................................................................. 4
TANF’s Specific IDA Rules .................................................................................................. 4
IDAs Under TANF’s General Use of Funds Provisions.......................................................... 5
IDAs in Determining TANF Cash Eligibility ......................................................................... 5
Additional Reading ..................................................................................................................... 5
Tables
Table 1. Assets for Independence Act IDAs: Funding History, FY1999-FY2010 .......................... 2
Contacts
Author Contact Information ........................................................................................................ 6
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Individual Development Accounts (IDAs)
Introduction
Most federal and state programs of financial assistance to poor and low-income families either
increase income or subsidize the purchase of goods and services to help them meet their basic,
immediate consumption needs. The exceptions are education and training programs, that seek to
build “human capital.” More recently, Individual Development Accounts (IDAs) have been
developed to help low-income families build financial capital.
IDA programs are operated by community-based organizations (including faith-based
organizations), as well as state and local governments in partnership with community-based
organizations. From the participant’s viewpoint, IDAs operate much like retirement 401(k) plans:
the participant makes contributions, which are matched (at varying rates) by the program.
Withdrawals from IDAs are restricted. Funds can be withdrawn to finance specific activities and
purchases—generally, education, the purchase of a home, and to start a business. An individual’s
contributions may also be withdrawn for other purposes, but this leads to the loss of matching
funds. In addition to providing matching funds for accounts, IDA programs also provide financial
literacy education, case management, and supportive services to participants.
This report describes IDA programs funded by two major federal grants: the Assets for
Independence (AFI) Act of 1998 and the Temporary Assistance for Needy Families (TANF)
program created in the 1996 welfare reform law. Other federal initiatives that provide for more
targeted IDAs (e.g., for refugees and for families in assisted housing) are not discussed in this
report.
Assets for Independence Act Demonstrations
The Assets for Independence Act (AFI, P.L. 105-285) authorized up to $25 million per year for
FY1999 to 2003 for competitively awarded IDA demonstration programs.1 Congress has
continued the AFI program absent an authorization. The Department of Health and Human
Service (HHS) administers the AFI program.
Table 1 provides a funding history for IDAs under the AFI program P.L. 111-117, the omnibus
appropriation bill for FY2010, provides $24.025 million for AFI programs. AFI has been funded
at that level since FY2008.
AFI grantees must raise nonfederal funds to operate AFI IDAs. The AFI federal grant cannot
exceed the lesser of (1) the amount of nonfederal resources raised for the program, or (2) $1
million.
1 The AFI Act IDA program was subsequently amended by P.L. 106-554.
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Table 1. Assets for Independence Act IDAs: Funding History, FY1999-FY2010
($ in millions)
Fiscal Year
Appropriations
1999 9.994
2000 9.998
2001 24.891
2002 24.943
2003 24.827
2004 24.695
2005 24.704
2006 24.435
2007 24.452
2008 24.025
2009 24.025
2010 24.025
Source: Congressional Research Service (CRS) compilation of information from HHS and Appropriations
Committee documents.
What Types of Organizations May Operate AFI IDAs?
The AFI Act authorizes competitive grants for IDA programs to nonprofit organizations;2 state,
local, and tribal governments that apply with non-profits; credit unions; and organizations
designated by the Secretary of the Treasury as community development financial institutions.
Credit unions and community development financial institutions must demonstrate a collaborative
relationship with local community-based organizations whose activities are designed to address
poverty. Faith-based organizations may also operate IDA programs.
Additionally, the AFI Act “grandfathers” in eligibility to operate an IDA program to state
programs funded at $1 million or higher that were in operation on the date of enactment.
“Grandfathered” state programs need not comply with AFI’s rules. Under this provision,
Pennsylvania and Indiana received AFI funds.
Who May Participate in AFI IDAs?
Participation in AFI Act IDA programs is limited to persons who
• are eligible for TANF assistance; or
2 Defined as organizations described in Section 501(c)(3) of the Internal Revenue Code of 1986. Exempt from taxation
under Section 501(a) of the tax code.
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• live in a household with income below 200% of the poverty line or have and
have a net worth of less than $10,000. The net worth test takes into account the
market value of all assets except the household’s primary residence and the value
of one motor vehicle.
IDAs may be established for the benefit of the participant, as well as his/her spouse and
dependents. Since IDAs are targeted to low-income families who might qualify for government
aid based on low income and assets, the AFI Act requires that IDA funds be ignored when
determining eligibility for federal assistance programs.
What Are the Contributions and Match Rules in AFI IDAs?
Participants are required to contribute to their IDA with cash or a check. Contributions from
earnings are matched by a minimum $1 for each $1 in participant contributions. Matching
amounts are funded from both federal and nonfederal sources, with a minimum 50% funded from
nonfederal sources. Maximum matching amounts from federal funds are limited to $2,000 for any
one individual and $4,000 for any one household.3
For What Activities May a Participant Withdraw Funds from the
IDA?
Participants may withdraw their contributions, match funds, and interest for specified purposes.
These specified purposes are:
• Post-secondary educational expenses. Payments are made directly from the IDA
to an educational institution for tuition, fees, books, supplies, and equipment.
• The purchase of a home. Payments are made directly from the IDA to cover the
acquisition costs (including the closing costs) of the home. The acquisition costs
cannot exceed 120% of the average purchase price of similar residences in the
area.
• Starting a business. The IDA may be used to finance expenditures under a
business plan to acquire plant, equipment, working capital and finance inventory
expenses. The business plan must be approved by a financial institution, micro
enterprise development organization, or a nonprofit loan fund.
Can Participants Make Withdrawals for “Emergency” Expenses?
The AFI Act allows participants to withdraw their contributions from the IDA to pay medical
expenses for the participant and his/her spouse or dependents; payments to prevent the eviction of
the participant from her home; and necessary living expenses following loss of employment.
Match funds and interest earnings cannot be withdrawn for these emergency expenses.
3 For programs that have the minimum nonfederal 50% match, this would mean maximum matching amounts of $8 per
$1 in contributions and a total $4,000 per individual and $8,000 per household. However, if the program is able to raise
additional funds (beyond 50%), those funds, too, could be used to match participant contributions.
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What Additional Benefits and Services are Offered in an
IDA Program?
Under the AFI Act, IDA programs must use funds to provide financial literacy education
(economic literacy, budgeting, credit, and credit counseling) to IDA participants. Of the federal
and nonfederal funds used in the IDA program, up to 15% may be used for such financial literacy,
administration, and assisting with an evaluation of the program.
AFI Evaluation Requirements
As a demonstration program, the AFI Act IDA program has an evaluation component.
Organizations operating IDAs are required to submit annual progress reports to the Secretary of
Health and Human Services (HHS) and HHS is required to submit periodic reports to Congress.
Additionally, the AFI law requires an evaluation, which is being conducted by the Abt Research
organization. (Annual reports from HHS and reports from the AFI evaluation are cited in the
“Additional Reading” section of this report.)
TANF Program IDAs
Temporary Assistance for Needy Families (TANF) is a federal block grant that gives states broad
flexibility in the use of its funds in aiding needy families with children. Generally, TANF funds
(and required state monies spent under its “maintenance of effort” requirement) can be used to
further any of its statutory goals.4 In addition, TANF provides specific authority and rules for
states to operate IDA programs. States may use TANF and state maintenance of effort funds for
IDAs either as an activity that furthers the statute’s broad goals, in which case it must conform
only to general TANF rules, or under TANF’s specific authority to use funds for IDAs, in which
case it must follow TANF’s specific IDA rules.5
TANF’s Specific IDA Rules
The TANF law provides explicit authority for states to use federal block grant funds for IDA
programs and rules for their operation.6 Under this provision, IDA programs may be established
for individuals eligible for TANF assistance who may make contributions from earned income to
the account. Many of the rules for the TANF IDA are similar to the rules under the AFI Act:
contributions are to be matched through a nonprofit organization or a state and local government
(though there are no limits to matching rates or amounts); withdrawals may be made for
4 TANF statutory goals: to (1) provide assistance to needy families so that children may live in the homes of their
relatives; (2) end the dependence of needy parents on government benefits through work, job preparation, and
marriage; (3) reduce the rate of out-of-wedlock pregnancies; and (4) promote the formation and maintenance of two-
parent families.
5 The basic TANF block grant is $16.5 billion; state “maintenance of effort” spending is $10.4 billion per year. IDAs
have represented only a small share of this funding, though the exact amount of TANF funding used by IDAs year-to-
year is not available. In FY2003, total reported federal and state TANF expenditures on IDAs totaled $26.6 million, but
about half of that, $13.7 million, represents a reclassification of spending in a Wisconsin program from being reported
as a tax credit to being reported as an IDA expenditure.
6 See Section 404(h) of the Social Security Act.
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Individual Development Accounts (IDAs)
educational expenses, purchase of a first home, or starting a business; and the IDA is not to be
considered when determining the financial eligibility status of a recipient applying for or
receiving federal aid. Eligibility to participate in TANF IDA programs is limited to those
“eligible” for TANF assistance. There are no provisions for “emergency” withdrawals from
TANF IDAs.
IDAs Under TANF’s General Use of Funds Provisions
As mentioned above, IDAs may also be established under TANF’s authority to permit federal and
state funds to be used to accomplish any TANF purpose. Except for general requirements
regarding the use of TANF funds,7 states are free to design IDA programs without regard to
federal limits and rules. For example, such IDAs may be established for purposes other than
educational expenses, home purchase, or starting a business—such as purchasing a car.
IDAs in Determining TANF Cash Eligibility
Most states require that a family have low assets in addition to low income to be eligible for
TANF cash welfare. Ohio and Virginia eliminated this “asset test,” basing eligibility on income
alone. As of 2008, 33 other states exempted funds in IDA accounts from being counted as assets
when determining eligibility for TANF cash welfare.8 (The exemption of IDAs from countable
assets could apply to TANF, AFI, or otherwise funded IDAs.)
Additional Reading
Boshara, Ray. Individual Development Accounts: Policies to Build Savings and Assets for the
Poor. Brookings Institution Policy Brief, Welfare Reform and Beyond #32. March 2005.
Ciurea, Michelle, et al. Assets for Independence Act Evaluation: Second Annual Site Visit
Reports. Abt Associates, prepared for the U.S. Department of Health and Human Services.
December 2002.
Sheridan, Michael. Assets and the Poor. M.E. Sharpe Inc., Armonk, New York. 1991.
Office of Community Services, Administration for Children and Families, U.S. Department of
Health and Human Services, Assets for Independence Program: Status at the Conclusion of the
Eighth Year, Report to Congress, http://www.acf.hhs.gov/programs/ocs/afi/
Final_AFI_8th_Report.pdf
7 See CRS Report RL32748, The Temporary Assistance for Needy Families (TANF) Block Grant: A Primer on TANF
Financing and Federal Requirements, by Gene Falk.
8 This is based on information in the Urban Institute’s welfare rules database, available online at
http://anfdata.urban.org/WRD/databook.cfm.
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Individual Development Accounts (IDAs)
Author Contact Information
Gene Falk
Specialist in Social Policy
gfalk@crs.loc.gov, 7-7344
Congressional Research Service
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