New 401(k) rule change to help pay for long-term care, before age 60
A new change tied to your retirement account could help cover one of the most expensive and often overlooked costs families face.
Under a new federal rule, some workers will be allowed to tap into their retirement savings early, without the usual penalty, to help pay for long-term medical care, even before turning 60.
Federal health officials estimate that if you reach age 65, there’s about a 70% chance you’ll eventually need some form of long-term care. While Medicare covers many medical expenses after 65, it generally does not cover long-term care, such as help with daily activities.
How the new rule works
The change allows limited, penalty-free withdrawals from retirement accounts like a 401(k) to pay for insurance that covers daily living assistance, including help with bathing, dressing or eating.
Normally, withdrawing money from a 401(k) before age 59-and-a-half triggers a 10% early-withdrawal penalty, on top of regular income taxes. This new option removes that penalty in specific long-term care situations.
The government already allows penalty-free early withdrawals for certain circumstances, including a birth or adoption, or some unreimbursed medical expenses. This rule adds another potential exception.
5 On Your Side warning
Just because the penalty may be waived doesn’t mean there’s no cost.
Taking money out early can still mean paying taxes, and it also means less money growing for retirement over time. Financial experts recommend talking with a professional before making any decision that could impact your long-term savings.