Where in the code does it allow for rollover of 401K money due to disability? Does it explicitly allow for it, or is it under the part where it says that "any distribution from a qualified plan are eligible for rollover except..."? We are having a minor disagreement here at work. Thanks for the help!

I have the same question- so I am reviving this

You might want to try a search of the internet and visit some sites like www.401khelpcenter.com.

I have never seen or heard of any connection between disability and rollovers. Rollovers are a form of distribution and distribution has nothing to do with medical conditions etc, but instead has to do with termination, whether of the plan or participation.

Under "Hardship Withdrawals" a "distribution" could be made for unreimbursed medical expenses subject to the terms of the particular plan. It is also usually subjected to the requirement that it be major or catastrophic and that no other loans are available.

Medical expenses might be caused by disability, but disability is not a medical expense.

Hardship withdrawals are loans not rollovers.

Under Reg 1.402©-2 A-3(B) an eligible rollover distribution is any distribution that is not specifically excluded. A-3(B) and A-4 do not exclude a distribution for disability from a rollover unless it is a series of periodic payments.
I dont know any IRS ruling that prevents a LS distribution for disability from being eligible for a rollover. Check the 402(f) notice for rollover availability.