What is a qualified long-term care distribution (QLTCD)?

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.

What qualifies as “certified” long-term care insurance under SECURE 2.0?

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.

Can I use my 401(k) to pay for long-term care insurance without a penalty?

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.

Should I use my retirement savings to fund long-term care insurance premiums?

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.

How do I find out if my employer’s 401(k) plan offers qualified long-term care distributions?

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.

How do qualified long-term care distributions compare to paying LTC premiums with after-tax savings?

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.

Are qualified long-term care distributions available from an IRA?

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.

Disability Archives

Couple discussing retirement planning with advisor.

Insurance Solutions Article

Funding LTC Insurance From Your Retirement Plan

SECURE 2.0 created qualified long-term care distributions (QLTCDs), letting retirement plan participants pay LTC insurance premiums without the 10% early withdrawal penalty.

Listen

Insurance Solutions Podcast

Episode 521 – Importance of Disability Insurance

Discover why disability insurance is a critical but overlooked part of any financial plan and how to choose the right coverage for your income.

Insurance Solutions Article

Why Disability Insurance Remains Essential in 2026

Disability insurance protects your earning power, safeguards savings, and helps prevent retirement plan disruption during illness or injury.

Family & Health Article

Retirement Trusts for Beneficiaries with Special Needs

An overview of how retirement assets can support special needs trust planning, preserve government benefits, and provide long-term financial support for families.

Two women discussing how to use leftover funds in a 529

Financial Planning Article

Beyond Tuition: How to Repurpose Unused 529 Plan Savings

Extra 529 plan funds are flexible, with options for education, family beneficiaries, Roth IRA rollovers, ABLE accounts, or strategic withdrawals.

A woman reviewing her insurance coverage

Insurance Solutions Article

Are You Underinsured? Strengthen Your Coverage Before the New Year

The end of the year is a great time to identify gaps in your auto, home, and life insurance. Start the new year financially protected.

couple sitting down at table with computer, looking at insurance and financial documents

Financial Planning Article

The Importance of Insurance Protection in Financial Planning

It’s crucial to have a strategic approach to help optimize your financial resources as well as protect you and your family from seen and unseen risks.

Estate Planning Article

ABLE Accounts vs. Special Needs Trusts: Which Do You Need?

ABLE accounts and special needs trusts (SNTs) are financial solutions for individuals with disabilities. Learn the pros and cons of each.

Estate Planning Article

Estate Planning for Children With Special Needs

Proper estate planning for children with special needs protects their inheritance, government benefits, and financial security.

Family & Health Article

How to Pick the Right ABLE Account for You

Follow five key steps to get the right ABLE savings account for a person with special needs.

Estate Planning Article

3 Phases of a Lifelong Financial Plan for People With Disabilities

Lifelong planning for folks with disabilities is often a balancing act between providing support and not undermining existing benefits.

Family wondering, Is Disability Insurance Still Worth It?

Insurance Solutions Article

Is Disability Insurance Still Worth It? Factors to Consider Before Cancelling

When contemplating cancelling your disability insurance, there are considerations other than cost. Here’s what to think about.

Family & Health Article

Individuals with Disabilities: 5 Tips for Crafting Your Financial Plan

Discover five strategies that can help individuals with disabilities manage their medical expenses through financial planning.

About Mercer Advisors

We exist so you don’t have to worry about money. For more than 40 years, we’ve taken the sophisticated, time-tested approach that many ultra-high net worth individuals use to help manage their financial lives and made it accessible to more families.

Want to learn more about Mercer Advisors?

Let’s Talk

Core Solutions

Specialty Solutions

Our Team

Engaging Us

Our Locations

Sharing Knowledge

Explore by Topic

Trending

Explore by Format

Latest

Disability

Funding LTC Insurance From Your Retirement Plan

Episode 521 – Importance of Disability Insurance

Why Disability Insurance Remains Essential in 2026

Retirement Trusts for Beneficiaries with Special Needs

Beyond Tuition: How to Repurpose Unused 529 Plan Savings

Are You Underinsured? Strengthen Your Coverage Before the New Year

The Importance of Insurance Protection in Financial Planning

ABLE Accounts vs. Special Needs Trusts: Which Do You Need?

Estate Planning for Children With Special Needs

How to Pick the Right ABLE Account for You

3 Phases of a Lifelong Financial Plan for People With Disabilities

Is Disability Insurance Still Worth It? Factors to Consider Before Cancelling

Individuals with Disabilities: 5 Tips for Crafting Your Financial Plan

About Mercer Advisors

Explore Our Solutions

Want to learn more about Mercer Advisors?

Disability

Funding LTC Insurance From Your Retirement Plan

Episode 521 – Importance of Disability Insurance

Why Disability Insurance Remains Essential in 2026

Retirement Trusts for Beneficiaries with Special Needs

Beyond Tuition: How to Repurpose Unused 529 Plan Savings

Are You Underinsured? Strengthen Your Coverage Before the New Year

The Importance of Insurance Protection in Financial Planning

ABLE Accounts vs. Special Needs Trusts: Which Do You Need?

Estate Planning for Children With Special Needs

How to Pick the Right ABLE Account for You

3 Phases of a Lifelong Financial Plan for People With Disabilities

Is Disability Insurance Still Worth It? Factors to Consider Before Cancelling

Individuals with Disabilities: 5 Tips for Crafting Your Financial Plan

Further Learning

RMD Rules for Retirement Accounts: What You Need To Know

The Complete Retirement Income Guide: How to Make Your Money Last

When Your Child Turns 18: A Financial and Legal Planning Guide for Families

The Fall of Gold, Silver, and Bitcoin in 2026: Insights from our CIO

About Mercer Advisors

Explore Our Solutions

Want to learn more about Mercer Advisors?