Deceased Participant with Loan Balance

[Vlad401k]

We have a participant in a 401k plan who recently deceased. He was married and his wife wants to know what will happen to the outstanding loan balance. Our plan document does not provide guidance regarding this particular provision.

Will the loan be taxable to him, his estate or to her (the beneficiary)?

[pmacduff]

I had this same situation. Ultimately found out in this case (where the spouse was named beneficiary anyway) the 1099-R for the loan offset would be done in the participant's name because payout to beneficiary spouse was happening in the year of death. Didn't really matter, though in my case because surviving spouse and decedent filed a joint return for the year of death. The most important thing in the situation I had was whether or not the 10% penalty was going to apply because both participant and spouse were under 59 1/2. Turns out the 10% does not apply to the outstanding loan balance that was offset.

I'm not sure what would happen if the estate was the named beneficiary with spousal consent but would assume then that the loan 1099-R would be done to the estate.