One of the more meaningful — and unknown — changes to come out of the SECURE Act 2.0 of 2022 is a way to fund long-term care (LTC) insurance directly from your retirement plan without triggering the early withdrawal penalty. If you’re actively coordinating your retirement savings with your broader financial plan, this provision is worth understanding.
Congress created what the Internal Revenue Code calls “qualified long-term care distributions” (QLTCDs) through Section 334 of SECURE Act 2.0.¹ These distributions allow retirement plan participants to withdraw funds to pay premiums for certified LTC insurance exempt from the 10% early withdrawal penalty that would ordinarily apply. IRS guidance in Notice 2026-33 provides important operational detail for employers, plan participants, and insurance providers alike.²
This isn’t a free pass. The distributions are still taxable as ordinary income, and the annual limits are modest. But for those building a coordinated financial plan, QLTCDs represent a targeted tool to address one of retirement’s most significant and historically underfunded liabilities.
How this provision works
A QLTCD is a distribution from an eligible retirement plan used specifically to pay premiums for qualified LTC insurance. The distribution avoids the 10% early withdrawal penalty — which normally applies when you withdraw retirement funds before age 59 ½ — but it does not avoid income tax. As with a standard retirement plan distribution, the amount withdrawn is included in your taxable income for the year.
This provision has an important eligibility requirement: Your plan has to offer this option. Employers (also known as plan sponsors) aren’t required to adopt this provision, and many plans may not have done so yet. The IRS has extended the deadline for plan sponsors to formally amend plan documents to permit QLTCDs to Dec. 31, 2027. Checking with your HR department or plan administrator is a reasonable first step to find out if your plan offers this feature.
Which plans are eligible
The provision applies to defined contribution plans — specifically, 401(k)s, 403(a) annuity plans, 403(b) plans, and governmental 457(b) plans.¹ Notably, IRAs are excluded. So if your retirement savings are in an IRA, this provision won’t apply to those funds.
Understanding the annual limits
The statute puts strict caps on how much can be withdrawn as a QLTCD in any given year. The distribution must be the least of three amounts:
- The LTC insurance premiums paid during the year — for you and, if you’re married filing jointly, for your spouse
- 10% of your vested account balance
- $2,600 for 2026, a dollar amount indexed for inflation going forward
These caps are aggregate annual limits. They’re deliberately modest because Congress designed this as a supplemental mechanism, not a comprehensive LTC funding strategy.
To put that in perspective, the average long-term care insurance cost for a 55-year-old could run above $2,600 annually, so the QLTCD provision may offset only a portion of most premiums.3 For example, if a vested account balance is $200,000, the 10% cap of $20,000 would exceed the fixed $2,600 limit, which would then be the binding constraint. If a vested balance was $20,000, the 10% cap of $2,000 would have a limit below the indexed amount.
What “certified” long-term care insurance means
Long-term care insurance is coverage designed to pay for assistance with daily living activities — such as bathing, dressing, and eating — that can be needed later in life, whether in a nursing home, assisted living facility, or at home. Not every LTC policy qualifies for QLTCD treatment, however. The insurance must meet the definition of “certified long-term care insurance,” which includes:
- Qualified LTC insurance contracts for which premiums would be deductible on Schedule A, as defined under IRC § 7702B.
- Certain riders on life insurance or annuity contracts that provide LTC benefits.
- Coverage that provides meaningful financial assistance, with inflation protection and consumer safeguards built in.
If you’re evaluating whether your current policy qualifies or you’re considering a new one, your insurance advisor can confirm whether the contract meets the certified standard.
The compliance step you can’t skip
For the 10% penalty waiver to apply, the insurance issuer must provide a long-term care premium statement directly to your plan administrator. This is not something you can personally attest to — it requires your insurer to take action.
That statement must include:
- The insurer’s name and taxpayer identification number (TIN).
- A statement confirming the coverage is certified long-term care insurance.
- Identification of the employee who owns the coverage, the individual covered, and that person’s relationship to the employee.
- The premiums owed for the calendar year.
- Confirmation that the insurer has provided the required issuer disclosure to the IRS.²
If this statement isn’t filed, the 10% early withdrawal penalty is not waived, even if every other condition is met. IRS Notice 2026-33 establishes safe harbors that plan administrators can rely on when verifying participant certifications and insurer statements, which should ease operational friction over time as the process becomes more routine.
What you can’t do with these distributions
Two important limitations apply. First, QLTCDs cannot be rolled over into another retirement plan or IRA. Second, they’re not eligible for the three-year repayment provision that applies to certain other penalty-free distributions under SECURE 2.0 (such as qualified disaster distributions). When the money is out, it stays out.
Weighing the tradeoffs
Before incorporating this as a default funding mechanism, it’s worth thinking through the full picture.
On the favorable side, this provision can help you establish LTC coverage earlier without requiring you to liquidate other assets or disrupt your cash flow. For professionals still in peak earning years, it can also serve as a bridge strategy before retirement income begins flowing. In the broader context of longevity and healthcare risk, having LTC insurance in place is increasingly important to a well-coordinated financial plan.
At the same time, the trade-offs are real. These distributions are penalty-free, but they are taxable. If you’re in a high income-tax bracket — which is common during peak accumulation years — the tax cost of the distribution could be substantial. It also means withdrawing assets from a tax-deferred environment, reducing the long-term compounding potential of those dollars. Given the limits on the provision, this option is best understood as one tool among several and not a comprehensive solution for LTC funding on its own.
Putting it into your broader plan
The penalty-free distribution rules for LTC insurance premiums represent a thoughtful, albeit targeted, enhancement to retirement planning flexibility under SECURE 2.0. By removing the 10% early withdrawal penalty for qualifying distributions, Congress has created an incentive to address long-term care risk earlier. Long-term care is one of the most significant yet historically underprioritized liabilities facing retirees.
Whether this provision makes sense for your situation depends on your plan’s availability of QLTCDs, your income and tax position, the LTC coverage you have or are considering, and how the provision fits alongside your other planning priorities.
Contact your wealth advisor to evaluate how — and whether — to incorporate this option into your retirement and risk management strategy.
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A QLTCD is a distribution from an eligible defined contribution plan, such as a 401(k) or 403(b), used to pay premiums for certified long-term care insurance. Under Section 334 of the SECURE 2.0 Act, these distributions are exempt from the 10% early withdrawal penalty, though they remain subject to ordinary income tax.
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Certified long-term care insurance includes qualified LTC contracts for which premiums would be deductible on Schedule A under IRC § 7702B, certain life insurance and annuity riders that provide LTC benefits, and policies that include inflation protection and consumer safeguards.
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Yes, if your plan offers this feature. Under SECURE 2.0, eligible retirement plans may permit penalty-free distributions to cover certified LTC insurance premiums up to $2,600 in 2026 (indexed annually) or 10% of your vested account balance, or actual premiums paid, whichever is less. However, the distribution is still taxable as ordinary income.
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It depends on your income tax bracket, your plan’s availability of QLTCDs, and whether you have other LTC funding strategies in place. While this provision removes the early withdrawal penalty, the distribution is still taxed as income, which can be meaningful in high-earning years. Talk to your wealth advisor to determine whether this approach fits your overall plan.
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Contact your HR department or plan administrator to ask whether your employer has adopted the QLTCD provision under SECURE 2.0. Employers generally have until Dec. 31, 2027, to formally amend their plan documents to include this option, but some plans may already permit it on a good-faith basis.
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Using a QLTCD avoids the 10% early withdrawal penalty, but the distribution is still taxed as ordinary income. Paying premiums from after-tax (nonretirement) dollars doesn’t trigger income tax on the payment but may require you to liquidate taxable investments. The right approach depends on your tax situation, available liquidity, and long-term planning goals.
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No. IRAs are explicitly excluded from the QLTCD provision under SECURE 2.0. Only defined contribution plans — 401(k), 403(a), 403(b), and governmental 457(b) plans — qualify.
- Internal Revenue Code §§ 401(a)(39) and 72(t)(2)(N), as amended by Section 334 of the SECURE 2.0 Act of 2022 (Consolidated Appropriations Act, 2023, Pub. L. 117-328).
- “Guidance on Qualified Long-Term Care Distributions.” IRS Notice 2026-33, June 26, 2026.
- “Cost of Long-Term Care Insurance by Age.” RetirementLiving, March 30, 2026.
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