110th CONGRESS, LEGISLATIVE ISSUES A - Z
INDIVIDUAL DEVELOPMENT ACCOUNTS (IDAs)
ISSUE: Individual Development Accounts (IDAs) are matched savings accounts that can be used for three purposes: 1) buying a first home; 2) funding post-secondary education or training; or 3) starting a small business. IDAs were first authorized by Congress in the Personal Work and Responsibility Act of 1996. In 1998, the Assets for Independence Act (P.L. 105-285) established a five-year, $125 million demonstration program administered by the Department of Health and Human Services (HHS) to evaluate the effects of savings incentives on persons of limited means. IDAs may be opened by persons who meet a net worth test and are eligible for the Earned Income Tax Credit or Temporary Assistance for Needy Families. Contributions are not tax-deductible but are matched by contributions from a program run by a state or a participating nonprofit organization. The individual is not taxed on any matching contributions or their earnings.
The Assets for Independence (AFI) Program is run by the Office of Community Services (OCS), which is under the authority of the U.S. Department of Health and Human Services. OCS offers grants to many types of entities, including credit unions that serve low-income areas, to start IDA programs. In the U.S. today, over 50,000 people have participated in nearly 500 IDA programs nationwide.
Currently, IDAs managed by financial institutions are not matched by the federal government. A legislative authorization is needed to fund the matching portion, a necessity to make IDAs affordable and attractive for credit unions.
CUNA POSITION: CUNA strongly supports permanent enactment of IDAs and urges Congress to enact legislation that will provide a transferable tax credit for eligible entities.
IMPACT ON CREDIT UNIONS: IDAs fit perfectly with the credit union mission of “People Helping People.” Many low-income consumers presently have no relationship with a mainstream financial institution. IDAs are new products that can help these individuals build assets, while also helping to bring in a new customer base. Account holders come to credit unions while taking financial education courses in connection with their IDA. Also, they are working full or part-time, and saving regularly in their IDA for a specific asset purchase. By holding IDAs, credit unions gain the opportunity of selling additional financial products such as mortgages, business loans, and college loans, and often lead to IRAs, and other products. Credit unions, as well as other entities that manage IDAs, would receive $50 annually per account holder. This sum is designed to help defray the administrative costs incurred by the institution as well as to fund financial education programs.
STATUS/OUTLOOK: In 2003, legislation containing IDAs passed the House of Representatives (H.R. 7, the Charitable Giving Act of 2003) and the Senate (S. 476, the Charity, Aid, Recovery and Empowerment (CARE) Act). Unfortunately, the legislation was not brought to a House/Senate conference committee.
On March 14, 2007, Representative Stephanie Tubbs Jones (D-OH), a member of the House Ways and Means Committee, introduced H.R. 1514, the Savings for Working Families Act of 2007. In the Senate, Senator Joseph Lieberman (ID-CT) introduced companion legislation, S. 871.
This legislation would give tax credits to financial institutions (transferable tax credits to credit unions) that match the deposited savings of low-income individuals participating in an IDA program. If enacted into law, such savings would be matched dollar for dollar, up to $500 annually per person (up to four years). However, unmatched personal contributions into an IDA account would not be limited.
Under this legislation, account holders could use their accrued savings for: (1) buying a first home; (2) receiving post-secondary education; or (3) opening or expanding a small business.
These bills provide for 900,000 IDAs for applicants who are United States citizens or legal residents. In addition, applicants must be between the ages of 18 and 60 and students are not allowed to apply. Finally, the program is limited to those with adjusted gross incomes of no more than $20,000 for single filers, $30,000 for heads of households, and $40,000 for married couples.
A unique feature of this legislation is that matching funds from the financial institutions are deposited into separate accounts that parallel those belonging to the account holders. When a account holder has enough funds to make a qualifying purchase, the depository institution makes the payment directly to the educational institution or the seller of the asset, an owner selling his home to an account holder, for example.
The legislation would allow community organizations, like nonprofits, community development financial institutions, Indian tribes, and public housing authorities, to work with depository institutions to attract eligible individuals and provide financial training.
CUNA continues to lobby in favor of passage of this legislation.
CONTACT: John Hildreth, (202) 508-6724, jhildreth@cuna.coop.
