By now, many plan sponsors may be wondering whether SECURE 2.0 implementation will ever truly be finished. A recent reminder that the answer “not quite yet” comes in the form of IRS Notice 2026-33, which provided long-awaited guidance on qualified long-term care distributions. Prior to this release, there was little guidance on the implementation of this option. While the statute created a new penalty-free distribution option to pay long-term care insurance premiums, the guidance establishes several conditions that must be satisfied before a distribution will qualify for favorable tax treatment.
First, the provision is available only through eligible defined contribution plans, including qualified plans under Code section 401(a), section 403(b) plans, and governmental section 457(b) plans. Notably, nongovernmental section 457(b) plans are not eligible to offer qualified long-term care distributions. Qualified long-term care distributions are also available only for premiums paid for "certified long-term care insurance" that covers the participant or the participant's spouse. Qualifying coverage includes:
- A qualified long-term care insurance contract under Internal Revenue Code (IRC) Section 7702B;
- A life insurance or annuity contract with a rider or other provision that covers qualified long-term care services and qualifies as a separate contract under Section 7702B; or
- A life insurance contract with a rider or other provisions providing an accelerated death benefit that pays the cost of long-term care services if the insured becomes chronically ill.
The coverage must provide “meaningful financial assistance” in the event the insured needs home-based or nursing home care. Coverage will not be deemed meaningful unless it is adjusted for inflation and consumer protections are provided, including protection if the coverage is terminated.
Annual distributions are subject to a three-part limitation. For any taxable year, a participant may withdraw no more than the lesser of:
- The premium paid by or assessed to the employee during the year;
- 10% of the employee’s vested account balance; or
- $2,600 (as indexed in later years).
The notice also emphasizes that the distribution must correspond to premiums for the same calendar year. A participant cannot use the provision to pre-fund future premiums or reimburse premiums attributable to another year.
Perhaps the most significant portion of the guidance relates to documentation. A distribution will not qualify unless the plan receives a long-term care premium statement that contains the information required by the notice. The statement must be provided by the insurance issuer and include identifying information regarding the issuer, the employee, the coverage, and the premiums paid or assessed during the year. Plan administrators may rely on these statements and on participant certifications under IRS-provided safe harbors when processing requests.
The guidance also highlights several limitations that distinguish qualified long-term care distributions from other withdrawal opportunities created under SECURE 2.0. While qualifying distributions are exempt from the 10% additional tax generally imposed on withdrawals before age 59½, the exception is available only if the employer has adopted the feature. Unlike certain other SECURE 2.0 distribution provisions, participants generally cannot take a distribution from a plan that has not implemented the provision and later claim the exception on their tax return. In addition, distributions used to pay premiums for a spouse's coverage qualify for penalty relief only if the employee and spouse file a joint federal income tax return. Participants should also be aware that qualified long-term care distributions cannot be repaid to the plan. This differs from certain other penalty-free distributions under SECURE 2.0, such as distributions for personal emergency expenses, which may be repaid under specified conditions.
For plan sponsors that have adopted or plan to adopt this optional feature, the IRS has extended the discretionary amendment deadline. Most nongovernmental defined contribution plans now have until December 31, 2027, to adopt amendments permitting qualified long-term care distributions. For plan sponsors still evaluating whether to implement this feature, if you choose not to add it now, it can always be added in the future. If you have any questions on any of the changes made by SECURE 2.0 or subsequent IRS guidance, please contact any of our employee benefits team members.
