IRS Guidance Shines Light on Post-SECURE 2.0 Long-Term Care Distributions
The SECURE Act 2.0 made significant changes to the retirement income planning landscape—and many of those changes actually make it easier for taxpayers to access their retirement dollars without incurring penalties. One such change allows retirement investors penalty-free access to their retirement funds if they use those funds to pay for qualified long-term care insurance. These so-called qualified long-term care distributions (QLTCDs) are now an option for retirement plans but, until recently, the IRS had yet to answer many pressing questions. Now, the Treasury Department and the IRS have provided the guidance that plan sponsors have been waiting for—meaning that the QLTCD option may soon be available to a wider range of retirement investors going forward.
Post-SECURE Act 2.0 QLTCDs: The Basics
One new provision in the SECURE Act 2.0 allows taxpayers to withdraw up to $2,500 each year to cover the costs of long-term care insurance without triggering the 10% early withdrawal penalty that would otherwise apply to withdrawals made prior to age 59 ½. QLTCD withdrawals will still be subject to ordinary income taxation).
The actual amount that a participant can withdraw is the lesser of (1) $2,500, (2) 10% of the participant's vested account balance or (3) the actual cost of the long-term care premiums.
The funds can be used to pay for standalone long-term care insurance or for certain life insurance or annuity contracts that also provide for meaningful financial assistance in the event that the insured person requires long-term care in a nursing home or home-based long-term care. The $2,500 annual limit will also be adjusted for inflation (to $2,600 for 2026).
2026 IRS Guidance on QLTCDs
In May of 2026, the IRS released guidance clarifying that a distribution cannot be treated as a QLTCD unless a long-term care premium statement has been filed with the plan itself. Insurance companies are required to provide these statements at the request of the covered individual.
The statement provides basic information about the coverage, including the identity of the issuing insurance company and the individual who owns the policy. The statement should also describe the qualified long-term care insurance that's been purchased.
Plans are permitted to rely upon the insurance company's premium statement under a safe harbor rule. The safe harbor permits reliance on the statement to verify that the premiums are the correct amount, the insurance is certified and that a disclosure has been made by the insurance company to the Treasury secretary.
The IRS guidance also clarifies that the QLTCD is not a rollover. That means they are exempt from the mandatory 20% withholding rule and that the plan does not need to provide Section 402(f) notices to plan participants.
The IRS also extended the deadline for amending a plan to provide the QLTCD option. Plans now have until December 31, 2027 to amend plan documents to allow QLTCDs (the original deadline was December 31, 2026). The deadline for plans subject to collective bargaining agreements is December 31, 2028 and government plans have until December 31, 2029 to make the required amendments.
Conclusion
QLTCDs are an optional plan feature—meaning that plan sponsors are not required to amend plans to add the option. However, with additional guidance, it's likely that more plans will begin to make the required amendments to give participants the optional distribution opportunity. Plans and participants should stay tuned for ongoing guidance and developments. Your questions and comments are always welcome. Please post them at our blog, AdvisorFYI, or call the Panel of Experts.