A new exception from the additional 10% tax for early distributions from defined contribution plans (including 403(b) and 457(b) plans) is now available. The exception applies to distributions of up to $2,600 (indexed) annually for certain long-term care ("LTC") insurance premiums. This relief under Section 334 of the SECURE 2.0 Act is effective for distributions after December 29, 2025.

Along with the relief from the 10% early distribution tax, Section 334 of SECURE 2.0 allows in-service distributions to pay for certain LTC premium payments. This feature is optional for defined contribution plans and would need to be reflected in a plan amendment. Even if the in-service distribution option is not offered, presumably a participant who has a distributable event can claim the 10% tax exception via Form 5329, though the form is not yet updated.  

This provision is listed on the latest IRS Priority Guidance Plan, and we anticipate that IRS guidance will clarify the scope of this relief and confirm the documentation needed to take advantage of this relief. Notably, a participant must provide the plan with a long-term care premium statement, available on request from the issuer of LTC coverage, which should be useful in determining eligibility for this in-service distribution.