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self-employed 401(k) for residents

I'm a resident paid on a grant rather than employed by the hospital, so I get "non-employee compensation" and a 1099 and I am not eligible for the 403(b) plan. I set up a self-employed 401(k)last year to shelter some small income I get for consulting work on the side, but I'm wondering if I can consider my whole resident's salary also as self-employed income because of my non-employee status, and thus can put $13,000 as the 'salary deferral' amount and 20% of the remainder of my income into the SE-401(k), massively reducing my taxes for 2004?

Zip Code: briancaveney@hotmail.com

Re: self-employed 401(k) for residents

My understanding is that grant income is different from self-employment income.

Grant income is generally an allowance to allow you to pay your bills while you're engaged in a research project during your training. If you receive a 1099-Misc, the employer generally reports grant income in Box 3, Other Income, and not in Box 7, non-employee compensation. The benefit of receiving grant income is that it isn't subject to social security or self-employment taxes, which is quite a savings.

The downside is that you're not supposed to report that income on a Schedule C, should not deduct your professional expenses directly against that income, and aren't entitled to contribute to a retirement plan based on that income.

Zip Code: aschwartz@mdtaxes.com