New LTC tax provision in 2026
A new long-term care (LTC) tax provision is going into effect January 1, 2026, and it may be helpful to keep in mind as you plan for next year’s conversations. Here’s a quick overview:
Starting in 2026, clients will be able to take money out of their qualified retirement plans before age 59½ to help pay for LTC insurance premiums without the 10% early-withdrawal penalty.
A couple key points:
· Withdrawals are limited to the lesser of 10% of the client’s vested balance or $2,500 per year.
· The funds must be used to pay premiums on a 7702B-qualified LTC insurance contract.
With these resources, be prepared to turn those “I’ll self fund” conversations into something a lot more productive.
For our SecureCare™ product line, the premium is split up into two different parts: the portion that goes toward the life insurance part of the contract and the portion that goes toward the LTC portion of the contract. With this new provision, up to $2,500 of an early withdrawal could be applied to the LTC portion of a SecureCare premium.
As you look ahead to next year’s cases, this may be a useful talking point for clients who are already interested in LTC coverage but unsure about how to fund it. It’s not a replacement for a broader funding strategy, but it may help move the conversation forward.
To view additional exceptions to the 10% early distribution penalty on retirement accounts, download this client-approved white paper.
Contact your SecureCare sales team to discover how this provision could align with our SecureCare solutions.
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