IRS Issues Guidance on Qualified Long-Term Care Distributions

(Parker Tax Publishing June 2026)

The IRS issued a notice to provide guidance on qualified long-term care distributions under Code Sec. 401(a)(39), which are permitted to be made by defined contribution plans under the SECURE 2.0 Act of 2022 (Pub. L. 117-328). Qualified long-term care distributions, which are exempt from the 10 percent early withdrawal penalty under Code Sec. 72(t), are distributions of up to the least of: (1) the amount paid by the employee for certified long-term care insurance for the employee or the employee's spouse, (2) 10 percent of the present value of the employee's vested accrued benefit under the plan, or (3) $2,600 (adjusted for inflation). Notice 2026-33.

Background

Section 334 of the SECURE 2.0 Act of 2022 (Pub. L. 117-328) amended Code Secs. 72(t) and 401(a) (among other provisions) to permit defined contribution plans to make qualified long-term care distributions and added Code Sec. 6050Z to provide related reporting requirements. Section 334 of the SECURE 2.0 Act is effective for distributions made after December 29, 2025.

Under Code Sec. 401(a)(39), which was added by Section 334 of the SECURE 2.0 Act, the term "qualified long-term care distribution" is defined as so much of the distributions made during the tax year as does not exceed, in the aggregate, the least of the following: (1) the amount paid by or assessed to the employee during the tax year for, or with respect to, certified long-term care insurance for the employee or the employee's spouse; (2) an amount equal to 10 percent of the present value of the vested accrued benefit of the employee under the plan; or (3) $2,600, as adjusted for inflation for 2026.

Code Sec. 401(a)(39)(C) defines the term "certified long-term care insurance" as a qualified long-term care insurance contract (as defined in Code Sec. 7702B(b)) covering qualified long-term care services (as defined in Code Sec. 7702B(c)); coverage of the risk that an insured individual would become a chronically ill individual (within the meaning of Code Sec. 101(g)(4)(B)) under a rider or other provision of a life insurance contract that satisfies the requirements of Code Sec. 101(g)(3); or coverage of qualified long-term care services under a rider or other provision of an insurance or annuity contract that is treated as a separate contract under Code Sec. 7702B(e) and satisfies the requirements of Code Sec. 7702B(g). For any one of these options, Code Sec. 401(a)(39)(C) further provides that the coverage must provide "meaningful financial assistance" in the event the insured needs home-based or nursing home care.

Code Sec. 72(t)(1) generally imposes a 10 percent additional tax on a distribution from a qualified retirement plan 6 unless the distribution qualifies for one of the exceptions to the 10 percent additional tax listed in Code Sec. 72(t)(2). Section 334(c) of the SECURE 2.0 Act added Code Sec. 72(t)(2)(N), which generally provides that the 10 percent additional tax on early distributions does not apply to qualified long-term care distributions described in Code Sec. 401(a)(39). Although the 10 percent additional tax does not apply, a qualified long-term care distribution is generally includible in gross income. Code Sec. 72(t)(2)(N)(iii) provides that qualified long-term care distributions are not treated as eligible rollover distributions for purposes of Code Secs. 401(a)(31), 402(f), and 3405.

Notice 2026-33

In Notice 2026-33, the IRS provided guidance in question-and-answer format on qualified long-term care distributions, with several questions addressed specifically to individuals who receive qualified long-term care distributions.

In response to the question of what is a qualified long-term care distribution, the IRS repeated the statutory definition and added that under Code Sec. 401(a)(39)(E), no distribution will be treated as a qualified long-term care distribution unless a long-term care premium statement with respect to the employee has been filed with the plan. A "long-term care premium statement" is a statement provided by an issuer to a defined contribution plan at the request of the owner of the coverage that sets forth the information specified in Code Sec. 401(a)(39)(E)(ii). The owner of the coverage will request, on a calendar year basis, that the issuer send a long-term care premium statement to the defined contribution plan.

An issuer of certified long-term care insurance that files a long-term care premium statement must report the long-term care premiums paid on Form 1099-LPS, Long-Term Care Premiums Paid Statement and furnish a written statement to each individual whose name is required to be set forth on the Form 1099-LPS. In addition, the payment of a qualified long-term care distribution to an employee must be reported by the payor on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Responding to the question of whether an employee may treat an otherwise permissible distribution as a qualified long-term care distribution if the plan does not permit such distributions, the IRS answered no and said that the exception to the 10 percent additional tax for qualified long-term care distributions will not apply to the distribution, even if it is used to pay for long-term care insurance.

The IRS was asked whether, like other distributions permitted under Code Sec. 72(t), qualified long-term care distributions may be paid with an extended three-year period. The IRS responded no, explaining that neither Code Sec. Sec. 72(t)(2)(N) nor Code Sec. 401(a)(39) provides that an amount distributed pursuant to Code Sec. 401(a)(39) may be repaid to a retirement plan within such a 3-year period. Thus, a qualified long-term care distribution is not eligible for extended 3-year repayment to a retirement plan.

Asked whether a qualified long-term care distribution is treated as an eligible rollover distribution for purposes of the direct rollover rules, Code Sec. 402(f) notice requirements, and the mandatory withholding rules, the IRS answered that a qualified long-term care distribution is not treated as an eligible rollover distribution for these purposes. Thus, a plan is not required to offer an individual a direct rollover with respect to a qualified long-term care distribution. In addition, a plan administrator is not required to provide a Code Sec. 402(f) notice. Finally, the plan administrator or payor of the qualified long-term care distribution is not required to withhold 20 percent of the distribution, as generally is required under Code Sec. 3405(c)(1). However, a qualified long-term care distribution is subject to the withholding requirements of Code Sec. 3405(b) and Reg. Sec. 35.3405-1T.

For a discussion of qualified long-term care distributions, see Parker Tax ¶131,560.

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