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I'm not a CPA but I thought Partner traditional 401(k) contributions got deducted on their 1040 not the K-1.

A rollover is a contribution. A contribution is not a loan payment. What more do you need?

It is fair not to run the General Test because you know it will pass. That does not make it a Design-Based Safe Harbor.

It is fair not to run the General Test because you know it will pass. That does not make it a Design-Based Safe Harbor.

Nice. However, I want to find out where you can get a hotel room for 3 people for $30.00, just so I can avoid that neighborhood!

I think the easiest way to explain why it can't be done is this: Before the loan this person had $50k in pre-tax IRA and $50k in pre-tax 401(k) money. A total $100k he will need to pay taxes at distribution. They take a loan and have no taxable income. The use the $50k in IRA money to repay the loan. So now they have $0 in pre-tax IRA and only $50k in pre-tax 401(k) yet they received $50k in cash without paying any taxes. Clever but I don't think it works for the reason Tom says. A rollover is a rollover. They would have to take an IRA distribution and then pay the loan. A rollover can't be both a loan payment and a rollover by definition. I think that is why you can't find a cite. it is embedded in the very definition of the words.

I once worked for a very wealthy man whose wife told him on their wedding day (back in the 1940s) that he could have a divorce any time he thought he could afford it. They stayed married until he died some 45 years later.

I know my parents always told me that they were "divorce-proof," since they had an agreement that whoever ASKED for the divorce had to take 100% custody of us kids!