Tax Credit for Individual Development Accounts Could Benefit Credit Unions

WASHINGTON – Credit unions that implement individual development accounts (IDA) programs may be eligible for a $550 annual tax credit. The Senate Finance Committee has approved the tax section of the Charity Aid, Recovery, and Development Act of 2003, which allows financial institutions a tax credit for each IDA account created. Through IDAs, account holders accumulate savings, which are later matched for buying a first home, paying for post-secondary education or starting a small business. Savings accumulated are matched by the credit union. CUNA President Dan Mica said the association had lobbied extensively for the tax credit and suggested that community organizations be allowed to participate in the IDA program as well. In a letter to Committee Chairman Charles Grassley (R-Iowa) and Ranking Member Max Baucus (D-Mont.), CUNA President and CEO Dan Mica made suggestions to improve the bill: * Modify the current language to specifically allow community organizations to participate in the administration of IDA programs; * Provide express statutory guidance with respect to the reporting requirements in order to simplify compliance; and * Ensure the legislation does not preclude financial institutions from charging reasonable fees associated with IDAs. Mica emphasized that local community organizations could provide essential assistance, including outreach, financial education, income verification, and overall accountholder support. In addition, Mica explained in his letter that allowing financial institutions to charge fees associated with IDAs would allow them to partially offset costs associated with the accounts and promote further development of a viable, cost-effective financial product for low-income savers.