I'm sorry to hear of your wife's illness.

A spouse is the beneficiary of any 401k. When she passes you will receive her funds. You can roll it directly into your own IRA, and then take yearly distributions. You won't be assessed a penalty, as you are older than 59.5, and will simply pay the normal federal and state income taxes on your yearly distributions.

How long it will take you to have the 401(k) distributed depends a bit on the trustee. I have heard of companies that released the funds fairly quickly after the paperwork was filled out, and I have heard of others that hold on to that money as if it were their own -- so count yourself lucky if you can get the money in less than six months.

Perhaps she can look into getting a distribution before she passes, not necessarily a large one, set aside in a more accessible account to help tide over your finances. If she is running up large medical bills, she might not owe the 10% penalty. You would have to check with a tax preparer on that.