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Connecticut Individual Development Account Initiative (IDA)
Frequently Asked Questions

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1. What are the tax implications of an IDA for the individual account holder?
The tax implications are as follows:
  • Income tax is already paid on the funds in account holders' IDAs since deposits into IDAs are made with after-tax income.
  • Interest earned on the IDA is considered income to the account holder and is therefore taxable in the year it is earned. However, many low-income families and individuals may, in fact, not pay any income tax in a particular year because their income is below the minimum level.
  • The match money is considered a gift at the time it is paid out to purchase the asset; it is NOT taxable income to the account holder.

2. What are the tax benefits to donors for making a contribution to an IDA program?
Connecticut corporations and other businesses that contribute funds into the State IDA Reserve Fund receive Human Capital Investment tax credits (HCIC). Contributors can specify whether they wish their contribution to benefit a particular IDA program. The Connecticut Department of Revenue Services administers the HCIC, and can be reached at 1-800-382-9463 or at (860) 297-5962 for information regarding contributions.www.ct.gov/DRS

3. Some states have, by statute, exempted interest on the IDA account holders' deposits from state income tax --
        has Connecticut?
No,Connecticut has not exempted interest on account holders' IDAs from state income tax. However, most Participants do not earn enough income to make a difference in their tax liability.

4. Can an IDA account holder save toward more than one asset at a time?
An IDA account holder can only save for one asset at a time. However, if they purchase an asset, and their maximum match has not been used, they can enter into a new Savings Plan Agreement and start to save for a second asset. The maximum amount of match for one individual, however, remains in effect.

5. Can account holders use their IDAs to save for their child's post-secondary education?
While there are usually no prohibitions against saving for a child's post-secondary education, in Connecticut there are other opportunities for families to save for this purpose. For example, a program known as the Children's Higher Education Trust College Savings Program (CHET) is administered through the State Treasurer's Office. Therefore, account holders in IDA Programs in Connecticut can be encouraged to use IDAs for themselves in ways that will benefit their children (first homeownership, business capitalization, their own post-secondary education), and to explore other options for funding their children's education. Information on CHET is available at www.aboutchet.com or by calling 1-888-799-2438.

6. Why should we subsidize the asset accumulation of low-income families?
The government already subsidizes the asset accumulation of middle and higher income Americans - billions of dollars annually in the form of home mortgage deductions, preferential capital gains and pension funds exclusions. What is good for higher income families should be good for low-income families as well.

7. Are IDA programs giveaway programs?
No. Savings matches are not "giveaways." Account holders earn savings matches by saving their own hard-earned dollars and taking other steps to prepare for the future, including completion of a financial education course and attendance at asset-specific training. Providing match dollars is a way to help hard-working low-income families and individuals build a more stable and secure future. Everyone benefits when more members of a community have the tools they need, the productive assets, to provide for themselves and their families. This same thinking has been behind government initiatives like the Homestead Act of the nineteenth century and the GI Bill following World War II.

8. How do we know IDAs will be used as intended?
Provisions are built in to ensure compliance. Account holders are informed of the eligible uses for IDAs, face penalties for misuse, and are motivated to comply because IDAs provide a route to their dreams. The Community-Based Organization holds the matching funds in a separate account, and only writes a check at the time the account holder is ready to purchase their asset. Checks are written only to eligible vendors such as the seller of a home or institution furnishing a mortgage; an accredited school; a business account established in a federally-insured financial institution; a licensed auto dealer; a rental property owner or lease management agency; or a 529 Savings Plan. If an account holder makes an unauthorized withdrawal from their IDA, they must withdraw from the program and forfeit the match.

9. What additional services are available to IDA Program Participants who participate in Jobs First Employment Services?
If participation in an IDA program is noted in a participant's Employment Plan or Individual Performance Contract, then childcare and transportation support can be provided as necessary for the times that the participant is attending the IDA Program. Jobs First Case Managers receive periodically updated lists of IDA programs throughout the state from the Connecticut Department of Labor.

10. How do assets in an IDA affect food stamp eligibility?
The USDA Food and Nutrition Service has determined that IDA savings and interest thereon, as well as matching funds and associated interest, are excluded from Food Stamp Program eligibility and benefits determination.

This exemption applies to IDAs established under the Federal Assets for Independence Act as well as to those established under the Connecticut Individual Development Account Initiative.


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