Form 1099-LPS and the $2,600 Long-Term Care 401(k) Withdrawal

There is a new 1099 in the IRS pipeline, and it exists because of a new way to get money out of a 401(k). Form 1099-LPS, the “Long-Term Care Premiums Paid Statement,” appeared as an early draft dated December 2026. It is the paper trail for a SECURE 2.0 provision that took effect on December 30, 2025: a retirement plan may now pay out a limited amount each year to cover long-term care insurance premiums, and the 10 percent early-withdrawal penalty does not apply.

The short answer: if your employer’s plan has added the option, you can take up to the least of your long-term care premiums for the year, 10 percent of your vested balance, or $2,600 for 2026, with no 10 percent penalty, though the money is still taxable income. Your insurer has to send the plan a premium statement first, and when it does, it also reports the premiums to the IRS on Form 1099-LPS and sends you a copy. The cap rises to $2,700 in 2027 under the statute’s inflation formula. The catch is that plans are not required to offer any of this, and most have until the end of 2027 to decide.

One naming trap first: Form 1099-LPS is not Form 1099-LTC. The LTC form reports benefits an insurer pays out under a long-term care policy, and those benefits are tested against the per diem limit on Form 8853; our Form 1099-LTC guide covers it box by box. This page is about paying the premiums for such a policy out of a 401(k) or similar plan.

What the law allows, in three limits

Section 334 of the SECURE 2.0 Act added section 401(a)(39) to the tax code, and IRS Notice 2026-33 explains how it works. A “qualified long-term care distribution” is the amount distributed during the year that does not exceed, in the aggregate, the least of three things. The notice lists them: “The amount paid by or assessed to the employee during the taxable year for, or with respect to, certified long-term care insurance for the employee or the employee’s spouse”; “An amount equal to 10% of the present value of the vested accrued benefit of the employee under the plan”; and “$2,600 (as adjusted for inflation for 2026).”

All three bind in practice. Suppose you pay $3,100 a year in long-term care premiums and have $30,000 vested in your 401(k). Ten percent of the balance is $3,000, and the dollar cap is $2,600, so $2,600 is the most that qualifies. With only $20,000 vested, the 10 percent test drops the limit to $2,000 even though your premiums and the dollar cap are both higher. And if your premiums are $1,800, that is the ceiling, because the distribution cannot exceed what you actually paid.

“Certified long-term care insurance” has a specific meaning. It covers a qualified long-term care insurance contract, a life insurance rider covering the risk of becoming chronically ill that meets the section 101(g)(3) requirements, or a long-term care rider on an insurance or annuity contract treated as a separate contract, and in each case the coverage must provide “meaningful financial assistance” if the insured needs home-based or nursing home care.

Why the limit will be $2,700 in 2027

The statute set the cap at $2,500 and indexed it for years after 2024, using the same cost-of-living formula that drives the tax brackets, with calendar year 2023 as the base, and with any increase “rounded to the nearest multiple of $100.” For 2026 that produced the $2,600 in the notice.

Because the measurement window for 2027 closed with the August 2026 inflation report, the 2027 figure can already be computed. Running $2,500 through the formula with the chained CPI data published through August gives about $2,713 to $2,716, depending on how the missing October 2025 reading is handled, and both round to $2,700. The nearest rounding boundary, $2,650, is far enough away that no plausible treatment changes the answer. The same calculation reproduces the official 2026 figure, and the method reproduces two years of official results for the SIMPLE IRA’s extra nonelective contribution, which uses the same base year and rounding. The IRS will publish the official number; we will update this page when it does.

The catch: your plan has to offer it

Nothing here is automatic. The notice is blunt: “It is optional for a defined contribution plan to permit qualified long-term care distributions.” If the plan does not offer them, you cannot make an ordinary withdrawal and label it later. Q&A B-11 says that if the plan does not permit qualified long-term care distributions, the penalty exception “will not apply to an employee’s distribution from a defined contribution plan, even if that distribution is used to pay for long-term care insurance.”

The notice also gives employers time. Most private-sector plans have until December 31, 2027, to adopt the amendment, collectively bargained plans until December 31, 2028, and governmental plans until December 31, 2029. The provision is written for employer defined contribution plans, 401(k), 403(b) and governmental 457(b) plans, and IRAs are not on that list. Before you plan around it, ask your plan administrator whether the option exists in your plan today.

How a distribution actually happens

The process runs through your insurer. At your request, the insurance company sends a long-term care premium statement to your plan, and the law is strict about that step: “No distribution will be treated as a qualified long-term care distribution unless a long-term care premium statement with respect to the employee has been filed with the plan.” The insurer can only do this after filing a disclosure for the product with the IRS and receiving an acknowledgment letter, so a carrier that has not done that paperwork cannot support a distribution yet.

Once the statement is on file, the plan can pay you. The notice lets plan administrators rely on what the statement says about the coverage, so the plan does not have to second-guess your policy.

Form 1099-LPS, box by box

When an insurer files a premium statement with your plan for a calendar year, section 6050Z requires it to report to the IRS, and the notice names the form: “Form 1099-LPS must be filed with the IRS no later than February 1 of the calendar year following the calendar year the long-term care premium statement was filed with the plan.” You get your copy by January 31.

The draft form is short. Box 1 is “Long-term care premiums and charges paid,” and the instructions to the policyholder explain that the figure includes premiums paid with the plan money “as well as other premiums and charges paid during the same calendar year.” Box 2 is the insured’s relationship to the policyholder, self or spouse, and the form also carries the insured’s name and taxpayer identification number. Copy B goes to you as policyholder; if your spouse is the insured, Copy C goes to them “for information only,” and the form notes that only the policyholder is required to report the information on a return.

The distribution itself shows up somewhere else. Q&A B-10 says the plan reports the payment on Form 1099-R, the same form as any other retirement distribution, and the 1099-LPS instructions point you to Publication 590-B and Form 5329 if you receive a 1099-R for a qualified long-term care distribution.

On your return: tax yes, penalty no

The notice is explicit that the money is not tax-free: “Although the 10% additional tax does not apply, a qualified long-term care distribution is generally includible in gross income.” A $2,600 distribution from a pre-tax 401(k) adds $2,600 to your income for the year.

The penalty exception runs through Form 5329. The 2026 draft instructions add exception number 24, “Distributions for qualified long-term care distributions,” for line 2, with a condition that matters for couples: “if the individual covered by the long-term care coverage is the spouse of the employee, this exception applies only if the employee and employee’s spouse file a joint return.” Paying a spouse’s premiums and then filing separately forfeits the exception.

Three more rules from the notice round this out. The distribution cannot be paid back to the plan under a three-year repayment window, because neither provision allows it. It is not an eligible rollover distribution, so the plan does not have to offer a direct rollover or a section 402(f) notice. And the plan is not required to withhold the 20 percent that applies to eligible rollover distributions. That last point cuts both ways: less withheld at the time means more of the tax to settle when you file.

Is it worth it?

For someone under 59½ who is already paying long-term care premiums and has a plan that offers the option, the arithmetic is simple: $2,600 of premiums paid with pre-tax plan money instead of after-tax income, with no penalty, costs the income tax on $2,600 and nothing more. For someone over 59½, the 10 percent penalty no longer applies to any distribution, so the special rule adds little beyond its paperwork. And for anyone, the money leaves the account permanently; it stops compounding. Premiums for qualified contracts may also count toward the itemized medical deduction within age-based limits, which we track in our guide to long-term care premium deduction limits for 2027; the two rules are separate, and a premium paid with a qualified distribution is still money you have already been taxed on through the distribution.

For other 2027 figures moving under the same inflation formula, see our IRS 2027 inflation adjustments tracker, and for the rest of the early-withdrawal exceptions, our guide to Form 5329. The taxes hub collects the other 2026 forms we have walked through.

Sources

• IRS, Notice 2026-33, Qualified Long-Term Care Distributions (Internal Revenue Bulletin 2026-24): https://www.irs.gov/irb/2026-24_IRB
• IRS, Form 1099-LPS (December 2026), early release draft: https://www.irs.gov/pub/irs-dft/f1099lps—dft.pdf
• IRS, 2026 Instructions for Form 5329, early release draft (exception 24): https://www.irs.gov/pub/irs-dft/i5329—dft.pdf
• 26 U.S.C. § 401(a)(39) and § 72(t)(2)(N), as added by section 334 of the SECURE 2.0 Act of 2022: https://www.law.cornell.edu/uscode/text/26/401
• finbarrow calculation from BLS chained CPI-U data (series SUUR0000SA0): 2026 control $2,600; 2027 $2,700 under both treatments of October 2025.