Rule expands penalty-free early 401(k) withdrawals
A provision from the 2022 Secure Act 2.0 is now in effect that allows limited penalty-free withdrawals from 401(k)s to pay long-term care insurance premiums.
TL;DR
- New rule allows penalty-free 401(k) withdrawals for long-term care insurance premiums.
- The rule is part of the Secure Act 2.0 legislation and became effective on December 29.
- Withdrawals are limited to the annual premium cost, capped at $2,600 for 2026 (indexed for inflation), and cannot exceed 10% of the 401(k) balance.
- These withdrawals are still subject to ordinary income tax.
- Not all employers will permit this option in their 401(k) plans.
- Long-term care costs are rising, with home health aides averaging $77,792 annually and nursing home rooms costing over $100,000 per year.
- Medicare generally does not cover long-term care services.
- Hybrid policies, combining life insurance with long-term care riders, are an alternative to traditional long-term care policies.
- Proof of premium payments for a qualifying policy will be required.