Individual Development Accounts (IDAs): Background and Current Legislation for Federal Grant Programs to Help Low-Income Families Save Page: 4 of 6

                                
CRS-4

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 Match funds and interest earnings cannot be withdrawn for these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.
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"
3 (...continued)
household. However, if the program is able to raise additional funds (beyond 50%), those funds,
too, could be used to match participant contributions.