I think he was asking in the event he cannot keep up with the payments. If that is the case, his loan would be considered a distribution, and that would be taxable plus a pretty significant penalty.
He should absolutely go to a tax accountant. It might be worth trying to keep up the payments for at least until he is 59 1/2.
I believe we're looking at a confluence of two 401K laws occurring at the same time:
1) If you take out a 401K loan you have to pay it back before leaving work there or pay a penalty and taxes on it.
2) The Age 55 rule for 401K's says that if you leave work on or after the age 55, you can take distributions without penalty (but have to pay taxes unless it's a Roth 401K).
I believe in this case there would be no penalty for not paying the loan back, because the Age 55 rule would trump that. But it would still be considered a taxable distribution like any normal withdrawal taken after retirement after age 55 (or age 59.5 if you left work there before the year you turned age 55).
My suggestions:
A) Talk to an accountant.
B) Tighten up your budget.
C) You can withdraw from your 401K with no penalty (but it counts as income tax). But do so sparingly (tightened up budget).
D) Move some of your 401K into an IRA so you can have better investment options. But leave some in the 401K to take advantage of the Age 55 rule. One it's in the IRA, then the 59.5 age rule applies for 10% penalty on early withdrawals (unless there's a disability).
E) Convert some of it to a Roth IRA so it grows tax free. But leave enough of it out of there that you can withdraw without paying the penalty for the 5 year rule of starting a Roth IRA's (assuming you haven't started one). Since it's near the end of the year, you can start a Roth IRA now and it's really more like 4 years and a month and a half before you can withdraw from the Roth IRA penalty free.
F) If you convert some to Roth IRA, make as much of it as you can with contributions instead of conversions. (Look up Order of Distribution Rules for Roth IRA's.) You can put up to $8K per year per person into a Roth IRA (for age 50 and older). You can do it for your spouse even if she's not working. So if you haven't made Roth IRA contributions for years 2024 yet, withdraw $16K from your 401K and immediately put $8K each into yours and your spouse's Roth IRA's. If you or your spouse plan to be working some in year 2025, take another $16K out this year (taxed for year 2024) and hold it until year 2025 to put $8K in each of your Roth IRA's for year 2025 too.
G) Another note about Roth IRA conversions from traditions 401K or IRA money: The moment of conversion is a taxable event. So don't convert enough this year to put you into a higher tax bracket. Calculate how much you can convert, which increases your AGI (Adjusted Gross Income), without increasing your AGI so much that some of your income is taxed at a higher tax rate.
End result: In year 2029 (as early as January 2029 if you want) you'll be able to withdraw $16K from each of your Roth IRA's without penalty or taxes because you started your Roth IRA's in year 2024 (satisfying the 5-year start rule for Roth IRA's). All contribution amounts are available for withdrawal penalty free, even contributions that aren't 5 years old. If you do some conversion in this year too, then the 5-year rule for conversions will let you withdraw that much out in year 2029 as well. Each year of conversions have their own 5-year clock. So if you convert some this year and some next year, then in year 2029 the total you can withdraw without penalty is total contributions + year 2024 conversion amount. The year 2025 conversion amount has to wait until year 2030 before you can withdraw that amount penalty free. And only after all conversion amounts are withdrawn does it count as withdrawing earnings (which you can do beginning the year you turn age 59.5).
Again, a quick reading of the Order of Distribution Rules for Roth IRA's explain all of this. It's a way to let your invested money grow tax free, as long as you follow the rules that keep you from being penalized for early withdrawals.