IRS Clarifies Long-Term Care Distributions from Defined Contribution Plans
Overview
The IRS recently issued Notice 2026-33, which provides guidance on qualified long-term care (LTC) distributions under SECURE 2.0. Effective for distributions made after December 29, 2025, defined contribution plans may permit participants to withdraw funds to pay premiums for certified long-term care insurance. These distributions are exempt from the 10% early withdrawal penalty under Internal Revenue Code section 72(t)(2)(N), but they remain fully includible in gross income. In practical terms, the rule provides penalty relief, not income tax exclusion.
Plan Adoption Remains Optional
This is not a mandatory participant right. A defined contribution plan may elect whether to offer qualified LTC distributions. Notice 2026-33 confirms that adopting this feature is a discretionary plan amendment. If a plan does not permit these distributions, the penalty exception is unavailable even if the participant uses the proceeds to pay LTC premiums.
Documentation Requirements Are Strict
The Notice imposes detailed qualification and documentation requirements. A distribution will not qualify unless the plan has received a long-term care premium statement. The insurance issuer must provide that statement at the policy owner’s request.
The premium statement must include specified information, including the identity of the issuer, the insured individual, the relationship of the covered person, confirmation that the policy is certified long-term care insurance, and the amount of premiums due for the year. Before a plan may rely on the statement, the issuer also must have submitted an “Issuer Disclosure” to the IRS for the product. Issuers remain subject to separate annual reporting requirements, including filing Form 1099-LPS to report premiums paid.
Administrative Relief Is Limited but Helpful
For plan administrators, the Notice offers a useful compliance benefit. Administrators may rely on the issuer’s certifications and on the information in the premium statement when processing distributions. That reliance rule should reduce verification burdens, but only if the issuer-side requirements have been satisfied.
Rollover and Withholding Rules Do Not Apply in the Usual Way
Notice 2026-33 also clarifies the distribution mechanics. Qualified LTC distributions are not eligible rollover distributions. Accordingly, the Section 402(f) notice rules do not apply, and plans need not offer direct rollovers. The 20% mandatory withholding rules for eligible rollover distributions also do not apply, although general withholding rules continue to govern the payment.
Annual Limits Narrow the Planning Value
These clarifications ease some administrative complexity, but the rule still requires coordination among plan sponsors, recordkeepers, and insurance issuers. In addition, annual distributions are capped at the lesser of the premium cost, 10% of the participant’s vested benefit, or a statutory amount—$2,600 for 2026, indexed for inflation. Those limits materially constrain the rule’s broader planning utility.
Plan Sponsors Have More Time to Act
Notice 2026-33 also extends the deadline for adopting conforming plan amendments. Most defined contribution plans have until December 31, 2027. Collectively bargained plans have until December 31, 2028. Governmental plans have until December 31, 2029.
Practical Takeaway
For accountants, plan sponsors, and closely held business owners, the extended amendment deadline provides time to assess both participant demand and administrative burden. Even so, qualified LTC distributions should be viewed as a narrow planning tool. They remove the early-distribution penalty, but they do not eliminate income tax and remain subject to modest annual caps.