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Assuming catch-up eligible, catch-up is not an "annual addition" subject to 415. See 414(v)(3)(A)(i) and 1.415©-1(b)(2)(ii)(B).

So go and celebrate at 1:59 even if the ADP tests aren't finished.

1099 income is not eligible because only non-employees are getting 1099's and you'll disqualify your plan in a New York minute if the plan is not for the exclusive benefit of employees. I cannot imagine a scenario that justifies giving an employee a 1099 for a special project under any circumstances. If you pay your employee for any services rendered, the rules are clear, they get a W-2. That's true even for Board Members who are traditionally paid via 1099. If they are employees, any comp for being on he board is w-2.

I believe this is an aggregate test. So the 25% limitation is based upon the aggregate contributions, and aggregate amounts allocated to the 401(h) account. If your plan allows life insurance, you need to take this into account as well. Take a look at the last paragraph of 415(h), which discusses the aggregate nature of the test. Caveat - I've never actually SEEN a plan with a 401(h) account... As for words of wisdom, free advice is worth what you pay for it!

Actually he wouldn't escape taxation. He would get a 1099-R from the source IRA for the amount of the distribution and a 1099-R from the source qualified plan. He would only be able to show one rollover so one would not be taxed and one would not be taxed. What he might be trying to do is get in effect 120 days by then saying I put in money for the qualified plan distribution 60 days after that distribution. I have never looked up if that is possible or not but given the IRS' new found dislike of people using a series of IRA withdrawals in effect keep a series of tax free and interest free loans going I have my doubts. So as to the original question I am with Lou S. I think the answer is "no" it won't work maybe for just a little different reason as to why.

I'd be very concerned about an audit and the IRS considering the 1099 income W-2 wages personally. I know this is not the question you asked. But unless he also brokers other projects outside of work for other clients, I would not have made that call. In the IRS' eyes a person is usually either an employee OR an IC but not both at the same time. They could start as one and change to the other mid-year so that is one out they might have if he wasn't doing both at the same time. I hope they got legal advice on this prior to making the decision and there are some facts not in evidence. your answer on HCE is going to depend on the definition of plan compensation, especially if it is "gross income". I am assuming deferrals did NOT come out of the 1099 income. I think their problem is larger than whether he is an HCE in this plan or not. You might have to solve that one first especially if he was participating as an employee while earning IC income.

forgot to add, you are supposed to chant Cosine, Secant, Tangent, Sine 3.14159

The celebration this year -- 3.14 15 -- is at 9:26:53

I thought the "loan interest is taxed twice" misconception had been laid to rest. Don't bother arguing. I am taking the same position about debate as Stephen Jay Gould did with evolution deniers. You can talk among yourselves.