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.

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