A worker with a 401(k) or similar plan can take money out this year to pay for long-term care insurance and skip the 10 percent additional tax that normally hits early withdrawals, as long as the plan allows it. IRS Notice 2026-33 sets the 2026 dollar limit at $2,600. The rule comes from section 334 of the SECURE 2.0 Act and covers distributions made after Dec. 29, 2025.

Three limits, and the lowest one wins

The $2,600 is a ceiling, not a payment. The notice says a distribution qualifies only up to the least of three amounts: $2,600 as adjusted for inflation for 2026, the premiums actually paid for the coverage, or 10 percent of the present value of the worker’s vested accrued benefit under the plan. A worker whose premiums are lower than $2,600, or whose vested balance is small, gets a smaller penalty-free amount.

The coverage has to be certified long-term care insurance, meaning a qualified long-term care insurance contract as defined in section 7702B(b) that provides “meaningful financial assistance” when the insured needs home-based or nursing home care. It can cover the employee or the employee’s spouse. If spouses file separate returns, the notice says the exception does not apply to the spouse’s coverage.

The tax that stays

Only the extra 10 percent goes away. The notice says a qualified long-term care distribution “is generally includible in gross income,” so the money still counts as taxable income for the year it comes out. A worker who takes $2,600 from a traditional 401(k) avoids the additional tax on it and owes ordinary income tax at the usual rate.

That makes the plan-ahead question a practical one for anyone who pays long-term care premiums: whether the plan offers the option at all, and what the extra income does to the rest of the year’s tax picture.

A penalty-free withdrawal of up to $2,600 still lands on the return as income. The Retirement Tax & Withdrawal Planner lays out the account withdrawal order and four calculators (provisional income, IRMAA tier, RMD schedule, Roth bracket fill) for judging what a 401(k) withdrawal does to the year’s taxes.

Plan the tax on a 401(k) long-term care withdrawal with the Retirement Tax & Withdrawal Planner →

Plans are not required to offer it

The notice states plainly that “it is optional for a defined contribution plan to permit qualified long-term care distributions.” A worker cannot demand the withdrawal, and employers have time to decide. The deadline to amend most non-governmental defined contribution plans is Dec. 31, 2027. It is Dec. 31, 2028 for applicable collectively bargained plans and Dec. 31, 2029 for governmental plans.

Even where a plan allows it, the distribution does not qualify on its own. No distribution counts “unless a long-term care premium statement with respect to the employee has been filed with the plan.” That statement is provided by the insurance issuer to the plan at the request of the owner of the coverage.

Form 1099-LPS and the paper trail

The IRS has drafted a new form for that step. The draft Form 1099-LPS, the Long-Term Care Premiums Paid Statement, is marked “DRAFT—NOT FOR FILING.” It is furnished by the insurer to the policyholder when the insurer has filed a premiums statement with a defined contribution plan. Box 1 shows “long-term care premiums and charges paid during the calendar year for coverage of certified long-term care insurance,” and the draft says “only the policyholder is required to report this information on a tax return.”

The notice requires issuers to file Form 1099-LPS with the IRS no later than Feb. 1 of the year after the statement was filed with the plan. The plan itself reports the withdrawal on Form 1099-R. The IRS’s draft Publication 575 for 2026 lists the exception in its “What’s New” section, saying a distribution for purchasing certified long-term care insurance is not subject to the 10 percent additional tax “if certain requirements are met.” Draft publications are not final, and the IRS says not to rely on them, so the notice is the controlling text.

Asking the plan and the insurer before a withdrawal

The free route starts with two questions. First, ask the plan administrator whether the plan permits qualified long-term care distributions, since the plan has until the end of 2027 to add the option and may not have. Second, ask the insurer whether it will file the long-term care premium statement with the plan, because the withdrawal does not qualify without it. The rule itself is in IRS Notice 2026-33.

Gather the policy’s certification details, the premiums paid so far this year and the plan’s vested balance. Those three numbers decide the least-of limit, and a vested balance below $26,000 puts the 10 percent test below $2,600.

Watch for two traps. The first is the spouse rule for separate filers. The second is treating the penalty exemption as tax-free money: the withdrawal is still income, so it belongs in the same year’s tax estimate as any other 401(k) distribution.

Penalty-free, but not tax-free: up to $2,600 in 2026

The 10 percent additional tax disappears on a qualified long-term care withdrawal, yet the money is still taxable income. The Retirement Tax & Withdrawal Planner helps set the account withdrawal order and runs four calculators (provisional income, IRMAA tier, RMD schedule, Roth bracket fill) so the extra income is counted before it is taken.

Check a long-term care withdrawal against your tax bracket with the Withdrawal Planner calculators →

This article was produced with AI assistance and edited for accuracy against the sources linked above.