Many Americans need help when faced with a major expense or financial hardship, whether it’spaying for college, health care, food, or living expenses, orresolving debt, and in order to overcome these challengesthey may seek financial aid through a federal program orprocess.

Depending on the program and the financial help needed, havingmoney in a retirement savings account could affect howmuch financial assistance an individual receives.

Before applying for government assistance, consider how each ofthe below programs stand to impact your savings.

Student financial aid

For many individuals, financial help is necessary when payingfor higher education, especially as the price tag continues togrow.

When filing for federal student aid with the U.S. Department ofEducation Office of Federal Student Aid, the largest provider ofstudent financial aid in the nation, an applicant is required toreport many types of assets (the parents’ and the student’s).

Those applying may wonder whether retirement savings accountsare included in these reportable assets. The answer depends on theformula used to determine how much financial aid the student iseligible to receive.

Balances in employer-sponsored retirement plans and IRAsgenerally are not included in the calculation. However,nonretirement account balances, such as checking, savings, CDs,brokerage accounts, stocks, bonds, mutual funds, etc., areincluded.

In essence, the balance in a retirement plan or IRA—whetherowned by the parent or the student—is not counted. But anycontributions to a retirement plan or IRA in the previousyear—the tax year for which asset information is gathered—arecounted.

According to the Federal Student Aid worksheets, “Completing theFAFSA 2017-18” and “The EFC Formula, 2017-2018,” prior yearcontributions to pension, profit-sharing, 401(k), 403(b), SEP, andSIMPLE IRA plans and Traditional and Roth IRAs are viewed asuntaxed income, and must be added back to the parent’s or student’sadjusted gross income portion of the calculation.

Any distributions from these plans or IRAs also are counted asincome and are reportable assets for the following year’s financialaid application, according to www.savingforcollege.com.

This is something to keep in mind when contemplating an IRAdistribution or preparing to withdraw from a retirement plan duringcollege years.

Even distributions taken to pay for higher education expensesare counted as part of the student’s income for the followingyear’s financial aid eligibility.

Welfare and medical aid

How does an IRA or retirement plan affect one’s ability toqualify for other types of financial aid? Again, it depends.

For federal programs meant to help low-income Americans, such asMedicaid or Children’s Health Insurance Program (CHIP), TemporaryAssistance to Needy Families (TANF), Supplemental NutritionAssistance Program (SNAP), and Supplemental Security Income (SSI),each state is allowed to establish—or eliminate—asset limits, themaximum dollar amount of assets the applicant may own to qualifyfor the program.

Although there is no federal asset limit, a commonstate-established dollar limit is $2,000.

Depending on the federal program and the state where theindividual is applying for program benefits, certain resources,such as retirement accounts, may be included in the program’s assetand income limits. If included, saving for retirement couldjeopardize the individual’s eligibility for the program.

But there are variations and exceptions to this guidelineindividuals will have to pay close attention to.

Most states generally do not count employer-sponsored retirementplans, such as a 401(k) plan, in the asset limit because atriggering event is needed to withdraw money; the account is noteasily accessible to the needy individual.

IRAs, on the other hand, which do not require a triggeringevent, are more likely to be counted in the asset limit. A typicalrule is that an IRA counts if it is not in required minimumdistribution (RMD) status.

For example, a Traditional IRA owner who is not yet required totake RMDs may have to include his IRA balance as part of his assetswhen applying for a low-income government program, while someonewho is taking RMDs may not, but any RMDs taken would becounted.

Another common rule is to count the IRA if the IRA owner is age59½ or older and the early distribution penalty tax no longerapplies.

Bankruptcy

When financial circumstances force individuals into bankruptcy,the possibility of surrendering their retirement savings is a validconcern.

The good news is that retirement plan assets generally areexempt from bankruptcy. This means the retirement plan assets of anindividual filing for bankruptcy are protected from creditors. Theexemption applies to the assets in an IRA, 401(k) plan, 403(b)plan, profit sharing plan, and other similar retirement savingsvehicles.

Congress recognized the need to protect retirement assets andput in place federal exemptions that apply a minimum standard for“retirement funds” to be exempt.

Each state may provide greater protections beyond the federalrules. Assets in plans covered under the Employee Retirement IncomeSecurity Act of 1974 generally are excluded from one’s bankruptcyestate with no limit on the amount of assets protected by theexclusion. T

he exemption of IRA assets, however, is limited, with aninflation-adjusted cap currently set at $1,283,025. Each state canprovide additional protection to IRA exemptions.

When faced with the daunting task of declaring bankruptcy, anindividual can rest assured that their own retirement assetsgenerally will be safe from creditor access.

Bottom line: Consult program rules and state guidance

Saving for retirement often takes a backseat to one’s currentfinancial circumstances, and money set aside for retirement tendsto be used for other more immediate needs.

However, those who qualify for certain federal programs andprocedures may not have to sacrifice their hard-earned retirementsavings, depending on program and state requirements.

Steve Christenson is executive vice president ofAscensus.