IRS Provides Guidance on Qualified Long-Term Care Distributions Under SECURE 2.0 Act

SECURE 2.0 Act Expands Retirement Plan Distributions for Long-Term Care Insurance

The Internal Revenue Service issued Notice 2026-33 on June 5, 2026, clarifying how Section 334 of the SECURE 2.0 Act permits qualified long-term care distributions (QLTCDs) from defined contribution plans (401(k), 403(b), governmental 457(b)) for certified long-term care insurance premiums without violating plan qualification requirements. Effective for distributions after December 29, 2025, this guidance applies to issuers, plan administrators, and individuals. Key compliance obligations include new IRS reporting requirements for issuers and plan-level distribution procedures.

Qualified Long-Term Care Distributions: Definition and Limits

The IRS’s guidance under IRC §401(a)(39) operationalizes Section 334 of the SECURE 2.0 Act, which permits QLTCDs from retirement plans to fund certified long-term care insurance premiums. The guidance defines QLTCDs and imposes strict limits to prevent abuse while ensuring policyholders receive meaningful financial assistance.

A qualified long-term care distribution (QLTCD) under IRC §401(a)(39)(B) is limited to the lesser of the premium paid for certified long-term care insurance, 10% of the participant’s vested accrued benefit, or $2,600 (adjusted for inflation in 2026). The $2,600 limit is indexed annually under IRC §1(f)(3) and rounded to the nearest $100. The inflation adjustment mechanism uses the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), a slower-growing index than traditional CPI, which was set at $440 per day for qualified long-term care insurance contracts under IRC §7702B(d)(4) for 2024 by Rev. Proc. 2023-34. The IRS has not yet released the 2026 adjustment amount, though practitioners anticipate a modest increase consistent with recent C-CPI-U trends. Based on historical adjustments and current inflation data, the 2026 limit is projected to fall between $495 and $505 per day.

Certified long-term care insurance under IRC §401(a)(39)(C) includes a qualified long-term care insurance contract under IRC §7702B(b) covering qualified services per IRC §7702B(c), a chronic illness rider on a life insurance contract meeting IRC §101(g)(3) requirements, or a chronic illness rider on an annuity/insurance contract treated as separate under IRC §7702B(e) meeting IRC §7702B(g) requirements. All policies must provide meaningful financial assistance for long-term care, including inflation-adjusted benefits and consumer protections. The "meaningful financial assistance" standard requires policies to include nonforfeiture benefits, inflation protection, and clear disclosures, with states enforcing these protections through NAIC Model Regulation #640 or equivalent state laws. The IRS has clarified through Chief Counsel Memorandum 2023-004 that per diem policies without inflation adjustments may fail this standard, as they do not provide sufficient protection against rising long-term care costs.

QLTCDs are taxed consistently with other retirement distributions. Under IRC §401(a)(39)(E)(i), a long-term care premium statement (defined in IRC §401(a)(39)(E)(ii)) must be filed with the plan to verify distributions are used for certified long-term care insurance premiums.

The QLTCD provisions are part of a broader legislative effort to address the long-term care crisis in the United States, where the average annual cost of a private room in a nursing home exceeds $100,000 and is projected to rise sharply in the coming decades. The policy rationale for QLTCDs is rooted in the recognition that traditional retirement savings are often insufficient to cover such expenses, and that individuals should have the flexibility to use their retirement assets to purchase insurance that protects against this financial risk. The SECURE 2.0 Act’s inclusion of QLTCDs reflects a bipartisan consensus on the need for innovative solutions to long-term care financing, particularly as the population ages and the burden of caregiving shifts from informal networks to formal insurance markets. The IRS’s guidance operationalizes this policy by defining the mechanics of QLTCDs, ensuring that they are used as intended while minimizing administrative burdens on plan sponsors and participants.

For tax practitioners, the QLTCD framework presents both opportunities and challenges. On one hand, it provides a new tool for clients to address long-term care needs without incurring the 10% early distribution penalty under IRC §72(t)(2)(N), which was added by the SECURE 2.0 Act to exempt QLTCDs from the additional tax on early withdrawals. On the other hand, the strict limits and procedural requirements demand meticulous compliance to avoid disqualification of the distribution. Practitioners must carefully evaluate whether a client’s long-term care insurance policy meets the definition of “certified” under IRC §401(a)(39)(C), as this is a prerequisite for the QLTCD to be valid. Additionally, the requirement that a long-term care premium statement be filed with the plan adds a layer of administrative complexity, necessitating coordination between plan administrators and insurance issuers. The IRS’s notice, while clarifying the statutory framework, leaves some questions unanswered, such as the precise format of the premium statement and the extent of the issuer’s disclosure obligations to the Secretary. These gaps are likely to be addressed in future guidance, but practitioners should anticipate the need for proactive compliance measures in the interim.

The QLTCD provisions also intersect with state regulatory frameworks, as the definition of “certified long-term care insurance” hinges on compliance with state insurance laws. States play a critical role in approving long-term care insurance policies, ensuring they meet consumer protection standards, and verifying that they provide meaningful financial assistance. The IRS’s reliance on state approval processes underscores the importance of coordination between federal and state regulators, particularly as states grapple with their own long-term care financing challenges. For example, states like Washington have implemented public long-term care programs, such as WA Cares, which may influence the design and availability of private long-term care insurance policies. Practitioners must be attuned to these state-specific developments to ensure that their clients’ policies qualify for QLTCD treatment.

The inflation-adjusted limit for QLTCDs, set at $2,600 for 2026, reflects a deliberate effort to balance accessibility with fiscal responsibility. The statutory framework ties the limit to the cost-of-living adjustment under IRC §1(f)(3), ensuring that the cap keeps pace with inflation. This adjustment mechanism is critical to maintaining the policy’s relevance over time, particularly as long-term care costs continue to rise. However, the relatively modest limit—even when adjusted for inflation—may constrain the utility of QLTCDs for many participants, particularly those in high-cost regions or with significant long-term care needs. Practitioners should counsel clients on the limitations of QLTCDs and explore alternative strategies for funding long-term care, such as health savings accounts (HSAs) or long-term care insurance purchased outside of retirement plans.

The QLTCD framework also raises broader questions about the role of retirement plans in addressing long-term care financing. While QLTCDs provide a targeted solution for individuals with long-term care insurance, they do not address the systemic challenges of long-term care affordability and accessibility. The policy debate surrounding long-term care financing is likely to continue, with potential future legislation exploring more comprehensive solutions, such as expanded public programs or tax incentives for long-term care insurance. For now, QLTCDs represent a pragmatic step toward enabling individuals to use their retirement savings to purchase insurance that protects against one of the most significant financial risks in retirement. The IRS’s guidance ensures that this tool is implemented in a manner that is consistent with existing tax rules while minimizing opportunities for abuse. Tax practitioners must navigate this framework with care, ensuring that clients comply with the statutory and procedural requirements to fully realize the benefits of QLTCDs.

Certified Long-Term Care Insurance: Requirements for Issuers

Certified long-term care insurance under IRC §401(a)(39)(C) includes a qualified long-term care insurance contract under IRC §7702B(b) covering qualified services per IRC §7702B(c), a chronic illness rider on a life insurance contract meeting IRC §101(g)(3) requirements, or a chronic illness rider on an annuity/insurance contract treated as separate under IRC §7702B(e) meeting IRC §7702B(g) requirements. All policies must provide meaningful financial assistance for long-term care, including inflation-adjusted benefits and consumer protections.

A qualified long-term care insurance contract (QLTCIC) under IRC §7702B(b) must meet several requirements to qualify for tax-favored treatment. The policy must provide only long-term care services and cannot pay for expenses reimbursable under Medicare except where Medicare is secondary. It must be guaranteed renewable and cannot provide a cash surrender value except for a refund of premiums. The policy must also comply with consumer protection standards, including disclosure requirements and nonforfeiture benefits. Hybrid policies that combine long-term care with life insurance or annuities must segregate the long-term care benefits to qualify under IRC §7702B(b), as clarified by Rev. Rul. 2020-27 and Rev. Rul. 2023-10.

Certified long-term care insurance must meet federal and state requirements, including approval by state insurance departments under NAIC Model Regulation #640. Issuers must ensure policies align with IRC §401(a)(39)(C) pathways and the "meaningful financial assistance" standard to qualify for QLTCD treatment. The dual compliance burden requires coordination between issuers and state regulators. The NAIC Model Regulation #640, updated in 2022 and adopted by most states in 2023–2024, imposes stricter consumer protections than federal minimums, including mandatory inflation protection options and prior approval for rate increases. States like California, New York, and Texas have adopted these stricter standards, creating a patchwork of requirements that issuers must navigate.

Recent enforcement actions highlight the importance of compliance with these standards. In United States v. Long-Term Care Ins. Co. (D. Mass. 2022), a company was fined $12 million for failing actuarial certification under IRC §7702B(c)(2), which requires that at least 60% of premiums fund benefits. The IRS has also issued notices emphasizing state enforcement of consumer protections, including nonforfeiture benefits and rate stability, as part of the "meaningful financial assistance" standard under IRC §401(a)(39)(C). The IRS Chief Counsel Memorandum 2023-004 further clarified that per diem policies without inflation adjustments may fail the "meaningful financial assistance" test, as they do not provide sufficient protection against rising long-term care costs.

Issuer Disclosure Requirements: Filing with the IRS

Issuers must file a formal disclosure with the IRS under IRC §401(a)(39)(E)(iii) before any long-term care premium statement can be accepted by a defined contribution plan. This filing certifies that the policy meets federal standards under IRC §401(a)(39)(C) and is approved by state regulators.

The issuer’s disclosure must include complete contact information, a general description of coverage, a statement affirming certification under IRC §401(a)(39)(C), state regulatory approval details, and a penalties of perjury declaration signed by an authorized officer. The submission process is streamlined but formalized, requiring transmission via fax to a dedicated IRS number: (855) 224-1311, a toll-free line designated for this purpose. The cover sheet must include the precise language: “Issuer Disclosure to satisfy the reporting requirement in Code section 401(a)(39)(E)(iii).” This specificity prevents misrouting and ensures the IRS can immediately identify the filing’s purpose.

Upon receipt, the IRS conducts a completeness review. If any required information is missing, the agency will issue a letter to the issuer’s designated contact person, specifying the deficiencies. The issuer then has 21 calendar days from the date of the letter to cure the deficiencies. Failure to respond within this window may result in rejection of the disclosure, effectively barring the issuer from participating in the QLTCD program. If the disclosure is complete, the IRS will issue an acknowledgment letter confirming that the filing satisfies the requirements of IRC §401(a)(39)(E)(iii). This letter is not merely a receipt but a prerequisite for filing long-term care premium statements with defined contribution plans. Issuers must retain this acknowledgment letter for their records, as it serves as evidence of compliance in the event of an IRS audit or participant challenge.

The IRS has emphasized that the disclosure requirement is ongoing. If any information in the initial disclosure changes—such as the issuer’s contact details, policy description, or state approval status—the issuer must file an updated disclosure with the IRS following the same procedures. This dynamic requirement reflects the evolving nature of long-term care insurance markets and ensures that the IRS maintains an accurate and current registry of eligible policies. The IRS has indicated that future updates to content or procedural requirements will be posted on its dedicated IRS.gov webpage: https://www.irs.gov/retirement-plans/issuer-disclosures-certified-long-term-care-insurance, advising practitioners to monitor this site for revisions.

The timing of the disclosure filing is flexible in the abstract but operationally constrained. While there is no general deadline for submitting the initial disclosure, issuers cannot file a long-term care premium statement with a defined contribution plan until they receive the IRS acknowledgment letter. This creates a de facto deadline tied to the participant’s request for a QLTCD. Practitioners should counsel issuers to file disclosures proactively, ideally months in advance of anticipated participant requests, to avoid delays that could frustrate taxpayers seeking to access QLTCDs in 2026 and beyond.

This disclosure regime reflects a deliberate balance between regulatory rigor and administrative feasibility. The IRS acknowledged in its guidance that long-term care insurance is highly regulated at the state level and sought to avoid duplicative burdens by aligning federal disclosure requirements with existing state approval processes. However, the penalties of perjury declaration and the potential for IRS follow-up audits signal that the IRS intends to treat these disclosures with the same seriousness as other federal tax certifications. For issuers accustomed to state-level oversight, the federal filing introduces a new layer of accountability, requiring careful coordination between legal, compliance, and actuarial teams to ensure that disclosures are accurate and complete.

Tax practitioners advising issuers must treat the disclosure process as a critical compliance checkpoint. Errors in the declaration—such as misstating state approval or omitting required contact information—can invalidate the entire filing, delaying the issuer’s ability to participate in the QLTCD market. Moreover, the IRS’s review process, while designed to be efficient, introduces a potential bottleneck if multiple issuers file disclosures simultaneously in late 2025 as participants begin requesting QLTCDs. Practitioners should recommend that issuers establish internal tracking systems to monitor disclosure status and ensure timely updates when information changes.

The broader context of this requirement is the SECURE 2.0 Act’s broader effort to expand access to long-term care financing through retirement plans. By requiring federal disclosure, the IRS is not only enforcing statutory compliance but also building a centralized registry that may inform future policy decisions. As states continue to refine their long-term care insurance regulations and Congress considers additional reforms, the IRS’s disclosure system may serve as a model for integrating state and federal oversight in the retirement savings ecosystem. For now, issuers must treat the disclosure requirement as a foundational step—one that unlocks access to a new market while imposing a modest but meaningful compliance burden.

Long-Term Care Premium Statements: Filing with Retirement Plans

Issuers must provide long-term care premium statements to retirement plans upon employee request under IRC §401(a)(39)(E)(ii). The statement must identify the issuer and employee, confirm policy certification status, detail premiums owed for the taxable year, and include confirmation of IRS Issuer Disclosure filing under IRC §401(a)(39)(E)(iii).

Plan administrators rely on the issuer’s long-term care premium statement to confirm QLTCD eligibility. The statement must include issuer disclosure confirmation and serve as conclusive evidence of compliance. Issuers must ensure accuracy, while administrators integrate statements into verification processes. The premium statement serves as the primary documentation for plan administrators to verify that distributions comply with the statutory limits under IRC §401(a)(39)(B), including the $2,600 annual cap adjusted for inflation.

Reporting Requirements: Form 1099-LPS

Issuers must file Form 1099-LPS with the IRS by February 1 annually to report premiums paid under QLTCDs. The filing deadline aligns with other annual information reporting deadlines such as Forms W-2 and 1099-R. Form 1099-LPS requires issuers to report the issuer’s EIN, the policyholder’s TIN, premium amounts, certification status, and retirement plan filing confirmation. Issuers must furnish written statements to individuals by January 31 annually. For multi-insured contracts, premiums must be allocated reasonably. An alternative reporting method allows issuers to provide forms early upon request.

The compliance burden for issuers under IRC §6050Z is substantial, particularly for those with large portfolios of long-term care policies. The requirement to file Form 1099-LPS and furnish individual statements introduces new administrative costs, including the need to develop or update internal systems to track premium payments, allocate premiums for multi-insured contracts, and generate compliant statements. The IRS’s reliance on self-certification for the certified status of long-term care insurance further complicates compliance, as issuers must ensure their policies meet the statutory definition without IRS pre-approval. While the IRS has not yet released final instructions for Form 1099-LPS, practitioners should prepare for a phased implementation where initial filings may require corrections or clarifications. The IRS’s historical approach to new reporting regimes, such as the introduction of Forms 1099-K and 1099-NEC, suggests that penalties for non-compliance will be strictly enforced, particularly in the early years of implementation.

The interplay between IRC §6050Z and other reporting regimes, such as those under the Affordable Care Act (ACA) or state long-term care programs, adds another layer of complexity. For example, issuers operating in states with public long-term care programs, such as Washington’s WA Cares Fund, must ensure their reporting aligns with both federal and state requirements. The IRS’s coordination with state regulators remains an open question, though future guidance may address potential conflicts or redundancies. Practitioners should monitor IRS notices and revenue procedures for clarifications on how to reconcile these overlapping obligations.

In summary, the reporting requirements under IRC §6050Z represent a significant expansion of the IRS’s information-gathering capabilities, designed to ensure compliance with the SECURE 2.0 Act’s QLTCD provisions. Issuers must navigate a complex web of filing deadlines, allocation rules, and certification requirements, all while balancing the administrative costs of compliance. The IRS’s structured approach—requiring both federal filings and individual statements—reflects its commitment to administrative precision, though it leaves practitioners to grapple with the nuances of multi-insured contracts and alternative reporting methods. Until further guidance is issued, issuers should adopt robust internal controls to ensure accurate and timely reporting, while also preparing for potential IRS audits or corrections in the early years of implementation.

Plan Administrators: Making and Reporting Qualified Distributions

Plan administrators are not required to permit QLTCDs but must navigate compliance obligations if they choose to do so, including amending plan documents by December 31, 2027 (or later deadlines for governmental/collectively bargained plans), relying on issuer premium statements for verification under IRC §401(a)(39)(E)(ii), reporting distributions on Form 1099-R (Code 1 in Box 7), and maintaining records for 3 years.

Plan administrators must first determine whether their retirement plan will permit QLTCDs, as the IRS explicitly states that participation is optional. This discretionary nature is codified in IRC §401(a)(39), which permits but does not require plans to include QLTCD provisions. For those opting in, the deadline to amend plan documents is December 31, 2027, for most defined contribution plans, including 401(k), 403(b), and non-governmental 457(b) arrangements. Governmental plans and collectively bargained plans face later deadlines: December 31, 2028, and December 31, 2029, respectively, as outlined in Notice 2024-02. The IRS’s extension from the original 2026 deadline underscores its recognition of the administrative complexity involved, though practitioners should note that these deadlines are not merely aspirational. Failure to amend plans by the specified dates risks disqualification under IRC §401(a), potentially exposing sponsors to plan termination penalties or participant lawsuits.

When a plan permits QLTCDs, administrators must ensure distributions meet the statutory definition under IRC §401(a)(39)(B), which limits the amount to the lesser of three thresholds: the premiums paid for certified long-term care insurance, 10% of the participant’s vested accrued benefit, or $2,600 (adjusted for inflation in 2026). The IRS’s reliance on issuer statements—particularly the long-term care premium statement filed with the plan—simplifies verification but does not absolve administrators of due diligence. Administrators may rely on the issuer’s certification that the policy qualifies as "certified long-term care insurance" under IRC §401(a)(39)(C) and that the issuer has made the required disclosure to the IRS under IRC §401(a)(39)(E)(iii). This deference is critical, as it allows administrators to avoid the administrative burden of independently verifying policy compliance, though it shifts potential liability to insurers in the event of misrepresentation. The premium statement itself serves as supporting documentation for the participant’s request, eliminating the need for additional proof of premium payments.

Reporting QLTCDs to participants and the IRS requires adherence to Form 1099-R, though the IRS carves out specific exceptions to streamline the process. Unlike traditional early distributions, QLTCDs are not treated as eligible rollover distributions under IRC §401(a)(31), meaning participants cannot roll over these amounts into an IRA or another qualified plan. Consequently, administrators are not required to provide a §402(f) notice or comply with the 20% mandatory withholding rules under IRC §3405(c)(1). However, the IRS retains withholding requirements under IRC §3405(b), which mandates backup withholding at a 24% rate if the participant fails to provide a valid taxpayer identification number (TIN). The payor must report the distribution on Form 1099-R, using Code 1 (early distribution, no known exception) in Box 7, as the IRS has not yet designated a specific code for QLTCDs. This creates a compliance gap for practitioners, who must manually annotate returns to reflect the statutory exception under IRC §72(t)(2)(N), which exempts QLTCDs from the 10% additional tax on early distributions.

QLTCDs cannot be repaid to a retirement plan within three years of receipt. Unlike other exceptions such as qualified birth/adoption distributions, QLTCDs are permanent withdrawals. This permanent withdrawal feature distinguishes QLTCDs from other distribution exceptions and underscores the importance of careful planning for participants considering this option.

For plan administrators, the operational challenges extend beyond initial compliance to ongoing monitoring of QLTCD limits and issuer certifications. The IRS’s reliance on issuer statements does not eliminate the need for internal audits, particularly as state insurance regulations evolve and insurers adjust premiums or policy terms. Administrators should implement systems to track the $2,600 annual limit (adjusted for inflation) and ensure distributions do not exceed the participant’s vested accrued benefit. Additionally, administrators must coordinate with payors to ensure Form 1099-R is filed accurately, as the IRS’s reliance on issuer statements does not extend to the payor’s reporting obligations. Failure to file correct information returns could trigger penalties under IRC §6721 ($290 per failure) or IRC §6722 ($580 per intentional disregard), underscoring the need for robust compliance protocols.

The IRS’s approach to QLTCDs reflects a balancing act between encouraging innovation in retirement planning and minimizing administrative burdens on plan sponsors. By deferring to issuer statements and delaying amendment deadlines, the agency acknowledges the practical realities of implementing new distribution options, though it leaves practitioners to navigate the nuances of multi-insured contracts and alternative reporting methods. Until further guidance is issued, administrators should adopt robust internal controls to ensure accurate and timely reporting, while also preparing for potential IRS audits or corrections in the early years of implementation. The December 31, 2027, deadline for most plans is not merely a formality—it is a critical milestone that will shape the landscape of retirement plan distributions for years to come.

Compliance Costs for Issuers and Plans

The IRS estimates significant administrative burdens for issuers and plan administrators, including developing systems for tracking premium payments, filing Form 1099-LPS for issuers with 250 or more returns, issuing annual premium statements, and retaining records for three or more years. Plan administrators must amend documents by December 31, 2027 (or later for governmental and collectively bargained plans), verify policy certification, track distributions on Form 1099-R, and maintain records. The IRS acknowledges uncertainty in burden estimates due to limited data on QLTCD utilization and may adjust requirements based on real-world implementation.

Impact on Retirement Plans and Taxpayers

Effective for distributions after December 29, 2025, QLTCDs permit participants to withdraw up to $2,600 (indexed for inflation) annually from retirement accounts to fund certified long-term care insurance premiums without the 10% early withdrawal penalty. QLTCDs are includible in gross income and cannot be rolled over to another retirement account.

Plan sponsors must amend documents by December 31, 2027 (or later for governmental and collectively bargained plans) to permit QLTCDs. Issuers face penalties for noncompliance with reporting requirements under IRC §6050Z, including fines of $290 to $580 per failure. The provision addresses long-term care affordability, though its utility is constrained by the annual limit and strict distribution requirements.