New 2026 Rule: Use Your 401(k) for Long-Term Care Insurance Premiums

Starting in 2026, a new provision in the SECURE 2.0 Act makes it easier to pay for long-term care insurance by allowing penalty-free withdrawals from your retirement accounts. Under this rule, you can take up to $2,500 per year from a 401(k), traditional IRA, 403(b), or other qualifying retirement plan to pay for long-term care insurance premiums without facing the 10 percent early withdrawal penalty that normally applies to distributions taken before age 59 and a half. This is a meaningful change for the millions of Americans who have most of their savings locked in retirement accounts and have been hesitant to tap those funds for insurance premiums.

What the SECURE 2.0 Act Changed

The SECURE 2.0 Act of 2022 (officially Division T of the Consolidated Appropriations Act of 2023) included dozens of provisions aimed at improving retirement security for Americans. One of the most notable for long-term care planning is the provision that allows tax-advantaged retirement account distributions to be used for long-term care insurance premiums.

Before this change, withdrawing money from a 401(k) or traditional IRA before age 59 and a half to pay for LTC premiums would trigger two costs: regular income tax on the distribution and an additional 10 percent early withdrawal penalty. The SECURE 2.0 provision eliminates the penalty portion for distributions up to $2,500 per year when the money is used for qualifying long-term care insurance premiums.

Key details of the provision include:

• Annual limit: $2,500 per person per year. A married couple can each withdraw $2,500, for a combined $5,000 annually.
• Penalty waived: The 10 percent early withdrawal penalty is waived. Normally, distributions before age 59 and a half carry this penalty on top of income tax.
• Income tax still applies: The distribution is still included in your taxable income for the year. Only the penalty is waived, not the income tax.
• Qualifying accounts: 401(k) plans, traditional IRAs, 403(b) plans, and 457(b) governmental plans.
• Effective date: Tax years beginning after December 31, 2025. The first year you can use this benefit is 2026.

How the Penalty-Free Distribution Works

The process for using this provision involves coordination between your retirement plan administrator and your long-term care insurance company. While specific implementation details may vary by plan, the general process works as follows:

1. You purchase or already own a qualifying tax-qualified long-term care insurance policy.
2. You request a distribution from your retirement plan specifically designated for LTC insurance premiums. Your plan administrator may require documentation showing the premium amount and policy details.
3. The distribution, up to $2,500, is processed without the 10 percent early withdrawal penalty. Regular income tax withholding may still apply.
4. You use the funds to pay your LTC insurance premium, or the plan may make the payment directly to the insurance company on your behalf.
5. At tax time, you report the distribution on your tax return and claim the penalty exemption using the appropriate form.

Not all employer plans are required to offer this distribution option. Your plan sponsor must amend the plan to include it. If your employer's plan does not yet allow these distributions, you may be able to roll funds into a traditional IRA and take the distribution from there. Check with your plan administrator for the most current information about your plan's options.

Tax Implications You Should Understand

It is important to understand that this provision only waives the penalty, not the income tax. Here is how the tax implications break down:

• The distribution is taxable income: The $2,500 withdrawal will be added to your gross income for the year and taxed at your ordinary income tax rate.
• No 10 percent penalty: Without this provision, a $2,500 withdrawal before age 59 and a half would incur a $250 penalty on top of income tax. The SECURE 2.0 provision eliminates that $250 penalty.
• Potential double benefit with the LTC premium deduction: If you itemize deductions on Schedule A, you may be able to deduct a portion of your LTC premium as a medical expense, which could offset some or all of the tax on the distribution.

Consult a tax professional for advice specific to your situation. The interaction between the penalty-free distribution, the LTC premium tax deduction, and your overall tax picture can be complex and varies based on your income, filing status, and total medical expenses.

Interaction with Existing LTC Tax Deductions

The SECURE 2.0 provision works alongside, not instead of, existing tax benefits for long-term care insurance. Under current IRS rules, premiums paid for a tax-qualified long-term care insurance policy can be deducted as a medical expense on Schedule A, subject to age-based limits. For a complete breakdown of the deduction rules, see our guide on LTC insurance tax deductions.

The 2026 age-based deductible limits for long-term care insurance premiums are:

• Age 40 or under: $500
• Ages 41 to 50: $930
• Ages 51 to 60: $1,860
• Ages 61 to 70: $4,960
• Over age 70: $6,200

These deductible amounts are included as part of your total medical expenses on Schedule A and are subject to the 7.5 percent of adjusted gross income (AGI) threshold. This means you can only deduct medical expenses that exceed 7.5 percent of your AGI. The combination of the SECURE 2.0 penalty-free withdrawal and the age-based deduction creates a two-part benefit: you avoid the early withdrawal penalty and potentially reduce your taxable income through the deduction.

Who Benefits Most from This Provision?

The SECURE 2.0 LTC provision is especially valuable for certain groups of people:

• Workers under age 59 and a half: This is the group that benefits most, because they would otherwise face the 10 percent penalty on top of income tax. A worker in their 50s who wants to start an LTC policy can now use retirement savings to fund premiums without the penalty.
• People with limited cash flow but large 401(k) balances: Many Americans have substantial retirement savings but limited discretionary income. This provision makes it possible to fund LTC premiums from an existing asset rather than finding room in a tight monthly budget.
• Couples planning together: With a combined $5,000 annual limit ($2,500 each), couples can use this benefit to fund a significant portion of their LTC insurance premiums. At ages 55, a couple's combined LTC premiums might run about $2,080 to $2,500 per year, which could be fully covered by penalty-free retirement distributions.
• Early retirees: People who retire before 59 and a half and need to access retirement funds for insurance premiums will find the penalty waiver particularly helpful.

For people already over age 59 and a half, the penalty waiver is less significant because they can already take penalty-free distributions. However, the provision still offers value by establishing a clear, designated mechanism for LTC premium payments from retirement accounts.

How to Set It Up

If you want to take advantage of the SECURE 2.0 LTC provision, here are the steps to follow:

1. Check with your plan administrator: Confirm that your employer's retirement plan has been amended to allow this type of distribution. If your employer plan does not yet support it, ask when they plan to adopt the provision.
2. Purchase a qualifying LTC policy: The policy must be a tax-qualified long-term care insurance policy. Confirm with your insurance agent or company that the policy meets the IRS definition of a qualified plan.
3. Request the distribution: Work with your plan administrator to request a distribution specifically designated for LTC insurance premiums. You may need to provide documentation such as your policy number, premium amount, and the insurance company's payment information.
4. Keep records: Save all documentation related to the distribution and premium payment. You will need this for your tax return to claim the penalty exemption.
5. File your taxes correctly: Report the distribution on your tax return and use the appropriate exception code to claim the penalty waiver. If you also plan to deduct the LTC premium as a medical expense, work with a tax professional to maximize your benefit.

Practical Example: How the Numbers Work

Consider a 55-year-old man who wants to purchase a long-term care insurance policy with an annual premium of $950. Here is how the SECURE 2.0 provision changes the math:

Without SECURE 2.0 (before 2026):

• To withdraw $950 from a 401(k) before age 59 and a half, he would owe approximately $228 in income tax (assuming a 24 percent tax bracket) plus a $95 early withdrawal penalty, for a total cost of $323 in taxes and penalties — about 34 percent of the withdrawal.

With SECURE 2.0 (starting 2026):

• He withdraws $950 and owes approximately $228 in income tax but no early withdrawal penalty. His total cost drops to $228, saving him $95. If he also itemizes deductions and claims the LTC premium as a medical expense (up to the $1,860 limit for ages 51-60), his effective tax cost could be even lower.

Over 20 years of paying premiums from a 401(k), the cumulative penalty savings at $95 per year would total approximately $1,900. For a couple, the penalty savings could be double that amount. While the savings on any single year may seem modest, the cumulative benefit over the life of a policy is meaningful.

Important Considerations Before You Act

Before using your retirement savings for LTC premiums, weigh these factors carefully. For background on what LTC insurance covers and whether it makes sense for you, see our complete guide to long-term care insurance.

• Impact on retirement savings: Withdrawing $2,500 per year reduces your retirement savings and the compound growth potential of those funds. Make sure you can afford the withdrawal without jeopardizing your retirement income.
• Plan adoption required: Not all employer plans will immediately support this distribution type. If yours does not, rolling funds to a traditional IRA may be an option.
• Only qualifying LTC policies: The provision applies only to tax-qualified long-term care insurance policies. Hybrid life/LTC policies and annuities with LTC riders may have different rules. Verify your policy's qualification status.
• IRS guidance is still developing: As with many provisions in the SECURE 2.0 Act, the IRS is still issuing guidance on implementation details. Rules may be refined as the agency provides additional regulations and clarifications.

The SECURE 2.0 Act's LTC provision is an important step in making long-term care insurance more accessible and affordable. By removing the early withdrawal penalty, Congress has acknowledged that using retirement savings to protect against long-term care costs is a legitimate and responsible financial decision. If you have been putting off purchasing long-term care insurance because of cost concerns, this new rule may be the incentive that makes it possible. Talk to both a financial advisor and a tax professional to determine how this provision fits into your overall retirement and long-term care plan.

Consult a tax professional for advice specific to your situation.