401k Withdrawal for Long-Term Care: Rules, Taxes, and SECURE 2.0 Changes (2026)

The Long-Term Care Crisis: Why Your 401k May Be the Safety Net You Need

Long-term care is one of the largest unfunded financial risks facing American families. According to the U.S. Department of Health and Human Services, approximately 70% of people who reach age 65 will need some form of long-term care during their remaining lifetime. The average length of care is about 3 years, but roughly 20% of people will need care for more than 5 years.

The costs are staggering:

• Semi-private nursing home room: $9,000–$10,500 per month ($108,000–$126,000 per year)
• Private nursing home room: $11,000–$12,500 per month ($132,000–$150,000 per year)
• Assisted living facility: $4,500–$6,000 per month
• Home health aide (44 hours/week): $5,000–$6,500 per month

With the median 401k balance for Americans aged 55–64 at approximately $185,000, many families face a painful reality: their entire retirement savings could be consumed by just 1–2 years of nursing home care. Only about 7.5 million Americans have long-term care insurance, and many policies purchased decades ago have inadequate coverage due to inflation.

This is why understanding how to access your 401k for long-term care — and the tax implications of doing so — is one of the most important financial decisions you may ever face.

Can You Use Your 401k for Long-Term Care?

Yes. There is no IRS restriction on what you use 401k withdrawal proceeds for. Once you take a distribution from your 401k, you can spend the money on anything — including nursing home bills, in-home care, assisted living, or long-term care insurance premiums.

The real question isn’t whether you can use your 401k for care, but how to access the funds with the least tax damage. The optimal strategy depends on:

• Your age (whether you’re subject to the 10% early withdrawal penalty)
• Your employment status (whether you’re still with the employer sponsoring the plan)
• The type of care needed (medical/nursing care vs. custodial care)
• Whether you’re planning ahead (buying insurance) or responding to a crisis (paying for care now)

SECURE 2.0 Changes: Penalty-Free Withdrawals for Long-Term Care Insurance

One of the most significant provisions of the SECURE 2.0 Act (Section 115) is the creation of a new penalty-free withdrawal category specifically for long-term care insurance premiums. Here’s how it works:

Key Rules for LTC Insurance Penalty-Free Withdrawals

• Annual limit: Up to $2,500 per year can be withdrawn penalty-free from a 401k to pay for long-term care insurance premiums
• Effective date: Starting January 1, 2025 (for calendar year plans)
• Eligible policies: The long-term care insurance must be a qualified LTC insurance policy as defined in IRC Section 7702B(b)
• No age restriction: Unlike the age 59½ rule for general withdrawals, this penalty-free exception applies regardless of your age
• Plan adoption required: Your employer’s 401k plan must adopt this provision — it’s optional for plan sponsors

What This Means in Practice

If you’re 45 years old with a $200,000 401k balance, you could withdraw $2,500 per year to purchase a long-term care insurance policy without paying the 10% early withdrawal penalty. You’d still owe ordinary income tax on the withdrawal, but saving the $250 penalty (10% of $2,500) helps.

Example: A healthy 50-year-old might pay $2,000–$3,500 per year for a long-term care insurance policy with a $6,000/month benefit and 3-year benefit period. The SECURE 2.0 provision effectively allows you to pre-fund your future care costs using tax-advantaged retirement money — a strategy that wasn’t possible before.

Important Limitations

• The $2,500 limit applies per individual, not per plan
• If your premium exceeds $2,500, the excess is subject to the 10% early withdrawal penalty if you’re under 59½
• You must be able to document that the withdrawal was used for LTC insurance premiums
• Not all 401k plans have adopted this provision — check with your plan administrator

Types of 401k Access for Long-Term Care Costs

1. Standard Withdrawal (Most Common)

If you or a loved one needs care now, a standard 401k withdrawal is the most straightforward option:

• Age 59½ or older: Withdraw any amount. You’ll owe income tax but no penalty.
• Under age 59½: Withdraw any amount. You’ll owe income tax plus the 10% early withdrawal penalty.
• Medical expense exception: If your unreimbursed medical expenses exceed 7.5% of your AGI, the portion of the 10% penalty attributable to those expenses may be waived under IRC Section 72(t)(2)(B).

2. Hardship Withdrawal

Many 401k plans allow hardship distributions for qualifying expenses, which include medical costs. Long-term care that constitutes medical care (skilled nursing, not just custodial care) may qualify:

• No 10% penalty waiver: Hardship withdrawals don’t automatically avoid the penalty — only the specific IRS exceptions do
• Plan-specific rules: Your plan administrator determines what qualifies
• Documentation required: You’ll need to provide evidence of the medical necessity and financial need

3. 401k Loan

Borrowing from your 401k rather than withdrawing avoids taxes and penalties entirely:

• Borrow up to 50% of your vested balance or $50,000, whichever is less
• Must repay within 5 years (unless used for a primary residence)
• If you leave your job, the loan may become due immediately — SECURE 2.0 now allows employers to extend repayment beyond separation, but this is optional
• Risk: If you default, the outstanding balance becomes a taxable distribution (plus the 10% penalty if you’re under 59½)

4. Required Minimum Distributions (RMDs)

If you’re 73 or older (the RMD age under SECURE 2.0), you’re already taking mandatory distributions from your 401k. These RMDs can be directed toward care costs without any additional penalty — you’re already paying income tax on them.

5. 401k for Long-Term Care Insurance Premiums (SECURE 2.0)

As described above, the new SECURE 2.0 provision allows penalty-free withdrawals of up to $2,500/year for qualified LTC insurance premiums, regardless of your age.

Long-Term Care Costs in 2026: What You’re Up Against

Understanding the actual cost of care helps you plan how much you may need to withdraw from your 401k:

Care Type	Monthly Cost	Annual Cost	What It Covers
Nursing Home (Semi-Private)	$9,200	$110,400	24/7 skilled nursing, room, meals, rehabilitation
Nursing Home (Private Room)	$11,500	$138,000	Private room with 24/7 skilled nursing care
Assisted Living Facility	$5,350	$64,200	Housing, meals, help with ADLs, social activities
Home Health Aide (44 hrs/wk)	$5,800	$69,600	In-home assistance with bathing, dressing, meals
Homemaker Services (44 hrs/wk)	$5,300	$63,600	Light housekeeping, meal prep, companionship
Adult Day Health Care	$2,000	$24,000	Supervised daytime care, social activities, health monitoring

How Fast Will a 401k Be Depleted?

Consider a retiree with a $250,000 401k balance who enters a nursing home:

• Private nursing home room at $11,500/month = $138,000/year
• After income tax (assume 22% effective rate), you need to withdraw approximately $177,000 to net $138,000
• A $250,000 401k could be fully depleted in roughly 1.5 years

This sobering math is why Medicaid planning — and understanding how your 401k interacts with Medicaid eligibility — is critical.

Tax Implications of 401k Withdrawals for Long-Term Care

Federal Income Tax

All traditional 401k withdrawals are taxed as ordinary income. The tax rate depends on your total taxable income for the year:

Filing Status	10% Bracket	12% Bracket	22% Bracket	24% Bracket	32% Bracket
Single	$0–$11,600	$11,601–$47,150	$47,151–$100,525	$100,526–$191,950	$191,951–$243,725
Married Filing Jointly	$0–$23,200	$23,201–$94,300	$94,301–$201,050	$201,051–$383,900	$383,901–$487,450

A large withdrawal for nursing home costs could push you into a higher bracket, making the tax bite even more painful.

The 10% Early Withdrawal Penalty

If you’re under 59½ and take a 401k withdrawal for care costs, you’ll generally owe the 10% penalty unless an exception applies. Relevant exceptions include:

1. Medical expense exception (IRC 72(t)(2)(B)): If your unreimbursed medical expenses exceed 7.5% of your AGI, the penalty is waived on the amount of the distribution that doesn’t exceed those expenses
2. Disability exception: If you’re permanently and totally disabled, all withdrawals are penalty-free regardless of age
3. SECURE 2.0 LTC insurance exception: Up to $2,500/year for qualified long-term care insurance premiums

State Income Tax

Most states tax 401k withdrawals as ordinary income. A few states (including Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee, and New Hampshire) have no state income tax, which can save you 4–10% on withdrawals.

Medical Expense Deduction (Schedule A)

Here’s some good news: nursing home costs and certain long-term care expenses are deductible as medical expenses on Schedule A if they exceed 7.5% of your AGI. This deduction can partially offset the income tax owed on the 401k withdrawal.

Qualified deductible expenses include:

• Nursing home costs (including room and board if the primary reason for being there is medical care)
• Long-term care insurance premiums (subject to age-based limits)
• In-home nursing care prescribed by a doctor
• Modifications to your home for medical necessity

Example: You withdraw $100,000 from your 401k and spend $80,000 on nursing home care. Your AGI is $100,000. The 7.5% threshold is $7,500, so you can deduct $72,500 in medical expenses. This could reduce your taxable income by $72,500, significantly lowering the tax bill on the withdrawal.

Medicaid Planning and Your 401k

When 401k funds are exhausted, Medicaid becomes the primary payer for long-term care for most Americans. But qualifying for Medicaid requires meeting strict asset and income limits — and your 401k counts.

How Medicaid Treats 401k Assets

For single individuals: The 401k is counted as an available asset in most states. To qualify for Medicaid nursing home coverage, you generally must have less than $2,000 in countable assets (the exact limit varies by state). This means you would need to spend down virtually your entire 401k before Medicaid kicks in.

For married couples: When one spouse enters a nursing home, the Community Spouse Resource Allowance (CSRA) protects a portion of the couple’s combined assets for the at-home spouse. In 2026:

• Maximum CSRA: $154,140 (the at-home spouse can keep up to this amount)
• Minimum CSRA: $30,828 (the at-home spouse keeps at least this much)

The 401k balance of both spouses is included in the asset calculation. The community spouse’s 401k may be partially protected under the CSRA.

The Medicaid Look-Back Period

Medicaid examines all asset transfers made within 60 months (5 years) of applying for coverage. If you transferred 401k funds to family members or gave away assets during this period, Medicaid will impose a penalty period during which you’re ineligible for coverage.

This is why advance planning is critical. If you anticipate needing long-term care:

• Don’t give away 401k funds or other assets within 5 years of applying for Medicaid
• Consult an elder law attorney before making any major financial moves
• Consider Medicaid-compliant annuities that convert countable assets into an income stream

Spend-Down Strategies

If your 401k makes you over-asset for Medicaid, you may need to “spend down” to qualify. Legitimate spend-down strategies include:

• Prepaying funeral and burial expenses (these are typically excluded from Medicaid asset counts)
• Making home modifications for accessibility (if you or your spouse will remain at home)
• Paying off debt, including mortgage on the primary residence
• Purchasing a Medicaid-compliant annuity (converting the 401k into an income stream that doesn’t count as an asset)
• Paying for medical equipment, dental care, or vision care that isn’t covered by insurance

Warning: Never attempt to hide assets or make fraudulent transfers. Medicaid fraud carries severe penalties including criminal prosecution and disqualification from benefits.

401k Loan vs Withdrawal for Long-Term Care Costs

When facing care expenses, should you borrow from your 401k or take a withdrawal? Here’s a side-by-side comparison:

Factor	401k Loan	401k Withdrawal
Tax Impact	No taxes if repaid on schedule	Taxed as ordinary income
Early Withdrawal Penalty	None (it’s a loan, not a distribution)	10% if under 59½ (with exceptions)
Maximum Amount	50% of vested balance or $50,000	Entire balance (minus taxes/penalties)
Repayment Required	Yes — within 5 years (monthly payments)	No — it’s a permanent distribution
Effect on Retirement Savings	Reduced temporarily; restored when repaid	Permanently reduced
If You Leave Your Job	Loan may become due immediately (SECURE 2.0 may help)	No impact — withdrawal is already complete
Effect on Medicaid Eligibility	Loan proceeds count as assets; outstanding loan doesn’t reduce countable assets	Withdrawal reduces countable assets
Best For	Short-term care gaps, bridging to insurance, or care lasting under 2 years	Extended care needs, Medicaid spend-down, or when repayment isn’t feasible

When a Loan Makes Sense

• You need a short-term bridge (e.g., waiting for LTC insurance benefits to begin)
• You’re still employed and can repay through payroll deductions
• The care need is temporary (rehabilitation after surgery, short-term recovery)

When a Withdrawal Makes Sense

• The care need is long-term or permanent
• You need to spend down assets for Medicaid eligibility
• You’ve left your employer and can’t sustain loan repayments
• You’re 59½+ and won’t face the early withdrawal penalty

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The Bottom Line: Plan Before the Crisis Hits

Using your 401k for long-term care is often unavoidable, but the financial impact can be managed with proper planning. The key takeaways:

1. SECURE 2.0’s new penalty-free withdrawal for LTC insurance premiums ($2,500/year) is a game-changer — consider using it to buy insurance before you need care
2. If you’re 59½+, withdrawals are taxed as income but not penalized — plan withdrawals to minimize tax brackets across years
3. Medical expense deductions can significantly offset the tax burden of large care-related withdrawals
4. Medicaid planning should start years before you need it — the 5-year look-back period means last-minute asset transfers will backfire
5. For married couples, the Community Spouse Resource Allowance can protect up to $154,140 for the at-home spouse

Next Steps

• Explore penalty-free options: Read our guide to 401k early withdrawal exceptions to understand all situations where the 10% penalty is waived
• Compare your options: Our SECURE 2.0 loan changes guide covers the new repayment flexibility that may help if you’re considering a 401k loan for care costs
• Understand the tax impact: Use our 401k withdrawal tax bracket impact guide to estimate how a large care-related withdrawal will affect your taxes
• Considering a loan instead?: Our should I borrow from my 401k guide walks through the full pros and cons of 401k loans
• Medical expense withdrawals: See our 401k withdrawal for medical expenses guide for detailed rules on medical-related distributions