Notice 2026-33, May 20, 2026

The enactment of the SECURE 2.0 Act of 2022 (Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328) introduced several sweeping changes to retirement plan administration, notably creating a new framework for funding long-term care insurance using retirement assets. Specifically, Section 334 of the SECURE 2.0 Act amended the Internal Revenue Code by adding I.R.C. § 401(a)(39), I.R.C. § 72(t)(2)(N), and I.R.C. § 6050Z to permit defined contribution plans to distribute funds for certified long-term care insurance without triggering the 10% early withdrawal penalty.

Notice 2026-33 recently provided long-awaited administrative and procedural guidance to tax professionals, plan administrators, and insurance issuers regarding these provisions. This article provides a comprehensive summary of the key provisions, the IRS’s stated justifications, the interplay with relevant Code sections, and the effective dates practitioners must monitor.

Effective Dates and Plan Amendment Deadlines

The statutory provisions under Section 334 of the SECURE 2.0 Act are effective for distributions made after December 29, 2025.

Crucially, adopting a provision to permit qualified long-term care distributions is entirely optional for defined contribution plans. However, for plans that choose to offer this option, Notice 2026-33 extends the plan amendment deadline. For defined contribution plans that are not governmental plans, I.R.C. § 403(b) plans maintained by public schools, or collectively bargained plans, the deadline to amend the plan is extended to December 31, 2027 (modifying previous guidance in Notice 2024-02). Collectively bargained plans and governmental plans face deadlines of December 31, 2028, and December 31, 2029, respectively.

Statutory Framework: I.R.C. § 401(a)(39) and I.R.C. § 72(t)(2)(N)

Under I.R.C. § 401(a)(39)(A), a qualified defined contribution plan does not lose its tax-advantaged status solely by allowing "qualified long-term care distributions".

These distributions are capped annually. Under I.R.C. § 401(a)(39)(B), the maximum distribution during a taxable year cannot exceed the least of the following three amounts:

The amount actually paid or assessed during the year for certified long-term care insurance for the employee or the employee’s spouse.
10% of the present value of the employee's vested accrued benefit under the plan.
A statutory cap of $2,500, which is adjusted for inflation to $2,600 for the 2026 tax year.

Distributions satisfying these criteria are exempt from the 10% early withdrawal penalty pursuant to I.R.C. § 72(t)(2)(N). However, practitioners must note that these distributions remain includible in the taxpayer's gross income. Furthermore, the penalty exception under I.R.C. § 72(t)(2)(N) is voided if the distribution pays for a spouse's long-term care coverage and the employee and spouse file separate tax returns.

Guidance for Issuers: Disclosures and Premium Statements

To validate a distribution, the Code establishes a two-tiered documentation requirement: a disclosure to the IRS and a statement to the plan.

1. Issuer Disclosure to the IRS (I.R.C. § 401(a)(39)(E)(iii))

Before an issuer can validate a policy for a retirement plan, they must file an "Issuer Disclosure" directly with the IRS. Notice 2026-33 prescribes that this disclosure must be submitted via fax and include the issuer's contact information, a description of the coverage, a statement that the coverage is "certified" under I.R.C. § 401(a)(39)(C), the identity of the approving State regulatory authority, and a penalties of perjury declaration. Upon approval, the IRS issues an acknowledgment letter to the issuer.

IRS Justification: The IRS explicitly noted that the streamlined nature of this Issuer Disclosure is designed to strike a "balance between providing adequate disclosure to satisfy the applicable reporting requirement and minimizing the burdens for issuers... especially since long-term care insurance generally is highly regulated by States".

2. Long-Term Care Premium Statement (I.R.C. § 401(a)(39)(E)(i)-(ii))

No distribution qualifies for tax-favored treatment unless a "long-term care premium statement" is filed with the retirement plan. The issuer provides this statement to the plan at the policy owner's request. It must identify the issuer, the employee, the covered individual, the premiums owed, and affirmatively state that the Issuer Disclosure requirement with the IRS has been satisfied.

Reporting Requirements under I.R.C. § 6050Z

Section 334(d) of the SECURE 2.0 Act introduced I.R.C. § 6050Z, establishing stringent reporting mandates for insurance issuers:

Form 1099-LPS: Issuers must file the new Form 1099-LPS (Long-Term Care Premiums Paid Statement) with the IRS by February 1 of the year following the calendar year the premium statement was filed with the plan.
Recipient Statements: Issuers must furnish a written statement (Copy B of Form 1099-LPS) to the covered individuals by January 31.
Early Requests (I.R.C. § 6050Z(d)): If an individual requests a return before the close of the calendar year, the issuer must furnish it promptly and send a copy to the IRS. Notice 2026-33 provides an alternative compliance method: an issuer can satisfy this by providing a standard account statement or bill containing the required contact and premium information, alleviating the need to generate a premature tax form.

Guidance for Plan Administrators

Notice 2026-33 provides robust administrative relief and safe harbors for plan sponsors:

Safe Harbor Reliance: Plan administrators are explicitly permitted to rely on the issuer's long-term care premium statement to verify that the IRS Issuer Disclosure was made, that the insurance is certified, and to confirm the premium amounts.
No Rollover or Mandatory Withholding: Under I.R.C. § 72(t)(2)(N)(iii), these distributions are not eligible rollover distributions. Consequently, plan administrators do not need to provide an I.R.C. § 402(f) rollover notice, and the distributions are exempt from the mandatory 20% withholding under I.R.C. § 3405(c)(1) (though standard withholding under § 3405(b) still applies).
No Extended Repayment: Unlike qualified birth/adoption or disaster distributions, qualified long-term care distributions cannot be repaid to the plan over a 3-year period.
Tax Reporting: The payor must report the distribution on standard Form 1099-R.

A Critical Trap for the Unwary: The Plan Must Opt-In

Perhaps the most critical guidance for practitioners advising clients is found in Q&A B-11 of Notice 2026-33. If a defined contribution plan does not formally amend its plan to permit qualified long-term care distributions, an employee cannot simply take an otherwise allowable distribution (e.g., a hardship withdrawal) and treat it as a qualified long-term care distribution on their tax return to avoid the 10% penalty.

The IRS justifies this strict interpretation based on the statutory text: I.R.C. § 401(a)(39)(E)(i) mandates that a long-term care premium statement must be filed with the plan. A plan that has not adopted the provision will not accept the statement, meaning the statutory requirement cannot be fulfilled, and the I.R.C. § 72(t) penalty exception will be lost entirely. Tax professionals must actively consult with employer clients to amend their plans if they wish to offer this benefit to their workforce.

Prepared with assistance from NotebookLM.