The IRS has released guidance in Notice 2026-33 related to the SECURE 2.0 Act provision on qualified long-term care (LTC) distributions from defined contribution plans, including 401(k), profit-sharing and 403(b) plans.
This optional provision allows distributions to participants (including while actively employed) to pay for certified LTC insurance covering the participant or the participant’s spouse, up to specific dollar limits and with required documentation. Although these distributions are exempt from the 10% early withdrawal penalty, they are taxable and cannot be rolled over. LTC distributions are only available to pay premiums for policies from LTC insurers that 1) satisfy certain reporting and disclosure requirements, and 2) issue statements to defined contribution plans confirming information related to any participant’s request for an LTC distribution.
The notice extends the deadline for plan sponsors to amend their plans to adopt this feature until December 31, 2027.
The LTC option applies to distributions made after December 20, 2025. The notice extends the deadline for plan sponsors to amend their plans to adopt this feature until December 31, 2027, with later deadlines for governmental, applicable collectively bargained and public school 403(b) plans. LTC insurers must file Form 1099‑LPS with the IRS by February 1 following the year the insurer files a premium statement with a plan. A copy of this form must also be provided to the plan participant by January 31 of the year following the year the premium statement was filed with the plan.
The Q&As in the notice are organized into two sections:
- Section A addresses the reporting requirements for issuers of certified LTC insurance, including the requirements to send:
- A premium statement that contains specified information (such as the identity of the issuer and the employee owning the LTC coverage) to plans
- “Issuer Disclosures” that identify the issuer, the type of coverage and certain other information to the IRS
- Copies of IRS Form 1099-LPS (on which the issuer reports the LTC premiums paid for the calendar year) to both the IRS and the employee who requested a qualified LTC distribution (and the employee’s spouse if the distribution relates to his or her coverage)
- Section B provides guidance related to the requirements for defined contribution plans to make qualified LTC distributions
Key guidance on qualified long-term care distributions
Following are highlights for employer plan sponsors:
- Optional. Offering LTC distributions to plan participants is optional
- Need for premium statement and reliance. A qualified LTC distribution is defined as a distribution that falls below a specified amount (noted below) and is paid in connection with an LTC premium statement that has been filed with the plan
- Safe harbor reliance. Plan administrators are explicitly permitted to rely on the LTC issuer's premium statement to verify that the Issuer Disclosure will be made to the IRS, to verify that the insurance is certified LTC insurance and to confirm the premium amounts
- Maximum amount of qualified LTC distribution. A qualified LTC distribution is limited to the least of the following:
- Amounts paid during the taxable year for certified LTC insurance for the employee or spouse
- 10% of the participant’s vested account balance
- $2,600 (inflation-adjusted)
- No 402(f) notice and mandatory 20% withholding requirements. A qualified LTC distribution is not treated as an eligible rollover distribution. The notice confirms that such a distribution is not subject to the IRC section 402(f) notice and the mandatory 20% withholding requirements that apply to eligible rollover distributions; however, it is subject to the withholding requirements that apply to nonperiodic distributions (see Form W-4R Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions)
- LTC distributions reported on 1099-R. The notice confirms that qualified LTC distributions are reported on Form 1099-R
- Plan allowance for LTC distribution for 10% penalty tax exception to apply. If a plan does not permit qualified LTC distributions, then the employee may not treat an otherwise permissible distribution as eligible for the exception to the 10% additional tax for early distributions. This treatment is different from most other exceptions from the 10% additional tax enacted as part of SECURE and SECURE 2.0
- Repayment option. Qualified LTC distributions cannot be repaid. This contrasts with certain other types of distributions permitted under SECURE and SECURE 2.0 that can often be repaid within a three-year period
- Plan amendments deadline. The general deadline for a plan sponsor to amend its plan for required and discretionary amendments related to SECURE, SECURE 2.0 and other recent laws was extended until the end of 2026. For qualified LTC distributions, this amendment deadline is further extended for one additional year (to December 31, 2027); the amendment period is even longer for a governmental plan, a 403(b) plan maintained by a public school or an applicable collectively bargained plan
Going forward
Plan sponsors should consider whether to add qualified LTC distributions as an optional feature under their defined contribution plans. If adopted, sponsors will need to coordinate with their plan’s recordkeeper to ensure procedures are in place to collect the required statements.
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