Many younger employees are concerned about the potential future costs of long-term health care. They are considering purchasing long-term care insurance when premiums are significantly lower than they would be if they purchased this insurance when they retired.
IRS Notice 2026-33 clarifies the rules that will allow 401(k) plan participants under age 59½ to take penalty-free distributions from their accounts to pay for certified long-term care insurance premiums.
Employees should keep in mind that in most cases these distributions will count as taxable income.
Who is eligible—and how much they can withdraw
Each year, participants may withdraw funds up to:
- the actual premiums paid;
- 10% of the present value of the vested accrued benefit under the plan; or
- a statutory cap ($2,600 for 2026, indexed for inflation)
…Whichever amount is lowest.
Compliance requirements
Both plan administrators and long-term care insurance providers will need to provide appropriate documentation to allow participants to take advantage of this option. Part 3 of IRS Bulletin 2026-24 provides a comprehensive overview of these rules.
Given their complexity, you may want to speak with your 401(k) recordkeeper or third party administrator to get a more user-friendly explanation of what’s involved.
Effective date of coverage
The original effective date applies to distributions made after December 29, 2025. But most 401(k) plans haven’t amended their plans to allow for them.
For employers who do want to make the certified long-term-care distribution option available to their employers, they’ll need to amend their 401(k) plans by December 31, 2027.
But, like other early-withdrawal-penalty distribution options authorized by the SECURE Act, adoption of this option by plan sponsors is purely voluntary. Given the complex operational and compliance requirements, employers may want to ask their employees if such a feature would be important to them before starting the implementation process.
<1>
<1>
This article was authored by David Jaeger and Jeffrey Briskin. David is a financial advisor with Canby Financial Advisors, LLC, an Investment Adviser registered with the U.S. Securities & Exchange Commission. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or ability. David can be reached at 508.598.1082 or djaeger@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
©2026 Canby Financial Advisors, LLC.