On May 20, the Internal Revenue Service (IRS) released guidance on the rules governing distributions from long-term care insurance (LTCi) policies and from long-term care benefit plans. The rules cover how much a plan participant can withdraw, without penalty (but the withdrawal is taxable), to pay for LTCi, and what insurers and plans must disclose to the IRS and to policyholders.

Generally, Notice 2026-33 fleshes out the provision in Section 334 of the SECURE.2 Act that allows (but does not require) defined contribution plans to make penalty tax-free distributions to pay for LTCi premiums. To qualify for the exemption from the penalty tax an annual withdrawal must be the smallest of the participant’s actual long-term care insurance premiums for the year, 10 percent of the present value of the participant’s vested account benefit, or $2,600 for 2026 (that amount is indexed for future years).

Notice 2026-33 also includes safe harbors for plan administrators that are making qualified long-term care distributions and for individuals receiving such distributions. It is particularly relevant in situations involving the potential for a 10 percent early withdrawal penalty tax on distributions from defined contribution benefit plans when those distributions are used to pay for qualified long-term care. The Notice also covers the reporting requirements with which LTCi insurers must comply. In addition, the IRS extended the deadline to December 31, 2029 for defined contribution plan sponsors to amend their plans to allow for making qualified LTC distributions.

Generally, these rules apply to distributions made after December 29, 2025.

Prospects: The Notice specifies that there may be additional guidance on LTC distribution issues, and said that if so, that guidance will be posted on the IRS website.

NAIFA Staff Contacts: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org