$55,000 403b with $18,000 outstanding loan at death. Beneficiary wants to repay loan with life insurance proceeds and then rollover the 403b to an inherited IRA.
Problem I see is that she is repaying the loan with tax free money and the amount of the loan repayment within the 403b becomes taxable when the money is taken out later, even though it was repaid with tax-free life insurance proceeds. I'm not sure this part is even correct.
Seems it may be better and simpler to not repay it. I think the estate would receive a 1099 for the outstanding loan. Deceased was under 59 1/2 at death but 10% penalty would be waived because of death, I think.