New for 2026, defined contribution plans (401(k), 403(a), profit sharing plans, 403(b), 457(b) plans) can allow participants to use retirement savings to help offset the annual cost of long-term care insurance, without triggering the 10% early withdrawal penalty. Section 334 of the SECURE 2.0 Act added this new “qualified long-term care distribution” option (effective for distributions made after December 29, 2025).
In Notice 2026-33, issued yesterday, the IRS provides important guidance to issuers of certified long-term care insurance on compliance with the new disclosure and reporting requirements added by Section 334 of SECURE 2.0 (e.g., Form 1099-LPS, which is still in draft form). The Notice also provides guidance to plans offering qualified long-term care distributions. Notably, in making a qualified long-term care distribution, the plan administrator can rely on the long-term care premium statement furnished by the issuer to the plan at the request of the participant. And there’s more — for those plan sponsors worried about the December 31, 2026, deadline for SECURE 2.0 amendments, the Notice announces a limited extension just for this feature. The new amendment deadline for adding this distribution option is December 31, 2027 (collectively bargained and governmental plans still have their extended deadlines).
We anticipate this guidance will increase interest in offering long-term care distributions, particularly because participants cannot take advantage of the 10% tax relief unless their plan offers this feature. Stay tuned for more details in our upcoming client alert!
If a defined contribution plan does not permit qualified long-term care distributions, then the exception to the 10% additional tax for qualified long-term care distributions will not apply to an employee’s distribution from a
defined contribution plan, even if that distribution is used to pay for long-term care insurance.
