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
3. Some states have, by statute, exempted interest on the IDA
account holders' deposits from state income tax --
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
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
www.aboutchet.com or by calling
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.
200 Folly Brook Boulevard, Wethersfield, CT 06109 / Phone: 860-263-6000
State of Connecticut