I have a plan where the husband and wife work at the same company. The husband passed away with a loan balance.

The wife wants to rollover the money into her account. She doesn't want to get a 1099r for the outstanding loan.

She has the money to payoff the loan. (The company is going to help her out) Pretty nice! Once the money gets into her account she will take a new loan to pay the company back.

Can the company and most importantly the 401(k) do this? Is there any rules or regulations about this? Let me know your thought. Thanks.

So, it sounds as if the company is loaning the wife money, which will then be used to pay off her deceased husband's outstanding loan. Then she will pay back the company. If that is correct, then in other words your question is whether the company can loan money to an employee. Sure it can.

WAIT a minute. Ever hear of the Sarbanes-Oxley Act?

Loans from a company to an executive are not allowable if she happens to be an executive (a 16-b person) and this is a publicly-traded firm.

For a normal rank-and-file type of person, it is OK.

One other twist: Some plans have restrictions on the reasons for a loan. I would check that out.

In the eyes of the IRS, can the wife payoff her husbands loan even though he has already passed away?

It was not her outstanding loan. All the paperwork was signed by him, for him to repay it. Can you payoff a loan of a participant who passed away. Will the IRS look at this in a negative way?