Washington area savings and loan associations will make premature distributions of Individual Retirement Account funds, but some will not redeem Keogh funds early. An article in The Post on Jan. 2 reported that the U.S. League of Savings Associations recommended blockage of both types of retirement accounts.

One reassuring thought for participants in Keogh and Individual Retirement Account plans has been that they always could get their money back in time to meet a dire need.

But a quick survey of Washington area banks and thrift institutions reveals this is not universally so. And, in fact, redemption may become even more difficult pending resolution by the Internal Revenue Service of a Catch 22 situation.

Although the 1974 Pension Reform Act provides that no tax-deferred funds can be distributed to their owner before age 59 1/2 except in case of death or disability, another provision states that if the money is turned over prematurely, the owner must pay taxes on it at the ordinary rate plus a 10 per cent penalty. In addition, interest penalities often are imposed by the bank for early redemption of certificates of deposit.

This escape clause has been widely interpreted by the public and pension consultants alike to mean that one could rescind an IRA or Keogh plan at any time provided one was willing to pay the price. (The only exception appeared to be funds invested in government retirement bonds, which are not redeemable in any circumstances - until age 59 1/2.)

Yet, largely unknown to the public, some banks and S&Ls have interpreted the pension law more narrowly and have refused to make premature distributions except in prescribed cases. This policy is recommended by the U.S. League of Savings Associations which warns that wholesale premature distribution could lead to disqualification by the IRS of member's model IRA or Keogh plans.

The result is confusion. A plan participant desiring his money early without legally recognized reasons may find his wishes blocked. A prospective participant concerned about protecting his option to withdraw will have to shop carefully for a plan. Because very few individuals go into a plan contemplating early distribution, the question of blocked funds rarely airses.

Of a dozen banks and saving and loan associations questioned, six said they make the distribution if desired, four permit none except where specifically allowed by law or specially permitted by the IRS, and other two decide on a case-by-case basis when the question arises.

Those S&Ls that refuse to make premature distributions are Washington Federal, Interestate Federal, Chevy Chase and Arlington Fairfax. Suburban Federal and Riggs National Bank declined to give a definitive answer.

To add to the confusion, a New York attorney and bank official recently suggested that any bank or thrift institution making premature distributions except in case of death or disability could be considered under the Pension Reform Act as engaging in a prohibited transaction and therefore could be liable to 5 per cent tax on all funds so paid out.