IRS Issues Guidance on Qualified Long Term Care Distributions
IRS Issues Guidance and Extends Amendment Deadline for Qualified Long-Term Care Distributions From Retirement Plans
The Internal Revenue Service (IRS) has issued Notice 2026-33, providing highly anticipated guidance on qualified long-term care distributions from qualified retirement plans. Under this new guidance, individual plan participants can make penalty-free withdrawals from defined contribution plans to pay for certified long-term care insurance premiums, up to a specific statutory limit. While these distributions bypass the standard 10-percent early withdrawal penalty, they are still subject to regular federal income tax. To give employer-sponsored retirement plans ample time to adopt these voluntary features, the IRS has officially extended the general plan amendment deadline to December 31, 2027.
Key Takeaways
The IRS has issued Notice 2026-33 to clarify how savers can take penalty-free withdrawals from their retirement accounts to pay for certified long-term care insurance. This new guidance outlines critical compliance rules for insurance providers and plan administrators while extending the deadline for employers to update their workplace retirement plans.
Penalty-Free Withdrawals
Under SECURE 2.0 rules, savers can make qualified long-term care distributions from defined contribution plans without facing the standard 10-percent early withdrawal penalty.
Tax and Repayment Rules
While these distributions avoid early withdrawal penalties, the money is still treated as taxable income and cannot be paid back into the retirement account later.
Extended Employer Deadline
The IRS has pushed back the deadline for most private employers to officially amend their retirement plans to permit these distributions to December 31, 2027.
Strict Reporting Requirements
Plan payors must document these distributions on Form 1099-R, while insurance companies must submit an Issuer Disclosure and file premium details on Form 1099-LPS by February 1 of the following year.
Understanding the SECURE 2.0 Act Foundation
This fresh guidance traces back to the SECURE 2.0 Act of 2022, which opened the door for employer-sponsored retirement savings accounts to support long-term care needs. Effective for distributions made after December 29, 2025, Code Section 401(a)(39) explicitly waives the 10-percent additional tax on early distributions when the funds are used for certified long-term care insurance. However, employees should note that these funds are not entirely tax-free; the distributed amount must generally be included in the taxpayer’s gross income for the year. Furthermore, unlike other penalty-free relief options, a qualified retirement plan long-term care distribution does not qualify for the standard three-year repayment window, meaning the funds cannot be rolled back into the account later.
“Notice 2026-33 bridges the gap for retirement plans, allowing penalty-free withdrawals for long-term care premiums while granting plan sponsors a critical deadline extension to December 31, 2027, to implement these changes.”
Requirements for Plan Administrators and Insurance Issuers
For an employee to successfully utilize this benefit, the employer’s plan must officially opt to offer it. If a plan permits these withdrawals, plan administrators are allowed to fully rely on the information provided in the long-term care premium statement when processing a request.
Insurance companies face strict regulatory steps before these distributions can even occur. Issuers must first complete an Issuer Disclosure and submit it directly to the IRS. While there is no universal calendar deadline for this specific disclosure, it must be finalized before the insurer can file a premium statement with a defined contribution plan.
Form 1099-R and Form 1099-LPS Reporting Mandates
Tax compliance requires careful tracking from both the retirement plan payor and the insurance issuer. Notice 2026-33 outlines specific reporting structures to keep the IRS informed of all transactions:
- Form 1099-R: The retirement plan payor must report the distribution to the employee using Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.).
- Form 1099-LPS: Insurance issuers must file Form 1099-LPS (Long-Term Care Premiums Paid Statement) to report the total premiums paid during the calendar year.
- Filing Deadlines: The Form 1099-LPS must be submitted to the IRS by February 1 of the year following the calendar year in which the premium statement was filed with the retirement plan.
The Extended Deadline for Plan Amendments
Recognizing that updating plan documents takes time, the IRS used Notice 2026-33 to provide plan sponsors with operational breathing room. The general deadline for non-governmental, non-public-school, and non-collectively bargained defined contribution plans to adopt amendments permitting these long-term care distributions has been extended from December 31, 2026, to December 31, 2027. It is important to note that this extension is specific; amendment deadlines for governmental plans and collectively bargained plans remain unchanged and must still follow the timeline previously established under Notice 2024-02. This extra time allows corporate plan sponsors to carefully evaluate issuer disclosures and seamlessly integrate penalty-free retirement withdrawals for long-term care into their benefit packages.
Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.
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