Financial Stability Glossary

What is a 529 College Plan?

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. There are two types of 529 plans: pre-paid tuition plans and college savings plans. All 50 states and the District of Columbia sponsor at least one type of 529 Plan.

What is the Earned Income Tax Credit (EITC)?

The EITC is a refundable federal income tax credit for low-income working individuals and families. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. Enacted by Congress in 1975, the tax credit was created to reduce the tax burden on lower-income workers, supplement their wages, and encourage greater participation in the workforce. Each year, the EITC raises the incomes of almost five million people above the poverty line, half of whom are children.

What is an IDA?

Individual Development Accounts, or IDAs, are matched savings accounts designed to help low- to moderate-income families accumulate savings for long-term assets such as a house, vehicle, a small business, or post-secondary education. The match incentive is similar to an employer match for a 401(k) or other retirement savings plan and is provided by a variety of government and social sector sources. IDA programs are implemented by community-based organizations in partnership with a financial institution that holds the deposits. More than 500 IDA programs have been launched across the country, allowing more than 15,000 people to save and build assets.

What is an IRA?

Individual Retirement Accounts, or IRAs, are special accounts with tax advantages that help individuals save for retirement. IRAs permit individuals to set aside money each year, with earnings tax-deferred until the age of retirement (59.5 years or older). IRAs can be established at a bank, mutual fund, or brokerage.

What is a Split Refund?

In 2007, the IRS made it possible for tax filers to deposit their tax refund into as many as three accounts – including checking, savings, and retirement accounts. This innovation in tax procedure could help individuals and families make more targeted use of their tax refunds. United Ways are engaging partners from the private, nonprofit and public sectors to promote split refunds at free tax preparation sites.