2026 Brings a New Tax Advantage for Long-Term Care Planning
A meaningful but often overlooked tax change takes effect on January 1, 2026: one that gives clients a new, low-friction path to start long-term care (LTC) planning without disrupting their retirement strategy.
Beginning in 2026, certain clients will be able to use a small portion of their qualified retirement accounts before age 59½ to help pay for LTC insurance premiums without triggering the 10% early-withdrawal penalty. This isn’t a full funding solution, but it does open the door for clients who want protection yet feel unsure about how to cover the cost.
What the New Rule Allows
Eligible clients may take a penalty-free withdrawal from a qualified retirement plan as long as:
The amount is no more than 10% of the vested balance or up to $2,500 per year, whichever is less
The dollars are used specifically to pay premiums on a 7702B-qualified long-term care insurance policy
For clients who typically say, “I’ll just self-fund when the time comes,” this new rule creates a way to turn future retirement dollars into leveraged LTC benefits today.
How It Supports Hybrid LTC Strategies
Many modern hybrid LTC policies separate premium dollars between a life insurance component and an LTC component. Under the 2026 tax provision, clients could apply up to $2,500 per year from a penalty-free withdrawal toward the LTC portion of their premium.
While this won’t pay for the entire policy, it can clear one of the biggest roadblocks: the fear of tapping retirement accounts and facing penalties. Now that concern is removed.
A Strong Conversation Starter
This update is especially useful for clients who:
Recognize the need for LTC protection
Worry about premium affordability
Want to maintain liquidity early on
Assume self-funding is their only option
Instead of waiting until care is needed decades from now, clients can use a modest amount today to secure significantly greater benefits for the future.
Looking Ahead
As you plan for 2026 conversations, this new tax exception provides an accessible, client-friendly entry point into LTC discussions; particularly for clients with sizable qualified assets.