May 5, 1997

Q. I am leaving my job next January, and by that time I will have $13,000 in my retirement account and $18,000 in a rollover account. I would like to cash in one of these accounts. How much should I expect to pay in taxes if I cash in one or the other? Whichever amount it is, it will most likely be my entire income for 1998.

J.G., San Diego, Calif.

A. I'd have to know a lot about your tax situation -- deductions, exemptions, etc. -- before I could give you a very good figure. If you're a single person, have no dependents, and take the standard deduction, you would face regular income taxes of about $964 if you cashed in the $13,000 retirement account, and $1,714 if you cashed in the $18,000 account. But those figures are based on the tax numbers for 1996, which are certain to be different in 1998.

But that's not all. If you're under the age of 59 1/2, you will face a 10 percent additional premature withdrawal penalty if you cash out the rollover account. And unless you leave your job during or after the year at which you reach age 55, you'll face a similar penalty if you cash out the $13,000 account from your current employer. There are a few exceptions to these rules -- the major ones involving disabilities, high medical expenses, or a program of pre-established equal annual withdrawals to be taken over the course of your life expectancy. Shy of those circumstances, you would face the 10 percent penalty on the retirement funds amassed through your current employer. Either way, you'll note, the penalty is likely to exceed the amount of regular income tax. Isn't there some way you can arrange things so you won't have to cash out either account?