In a recent column you wrote about the use of government savings bonds to avoid income tax on savings for a child college education. Can I do the same thing with retirement savings?

ANSWER: You can use Series E bonds for this purpose, but the technique is different from that of the college savings program.

If you accumulate "savings" bonds periodically during your working years, you can defer paying tax on the interest simply by not reporting it. After retirement, you can cash say, a bond a month; you need only report each year the total accumulated interest on the bonds redeemed that year. Presumably you will be a lower taxbracket then.

Perhaps a better way - if you need only the income and not the capital - is to trade the Series E bonds for Series H bonds when you retire. You only report (and pay tax on) the accumulated Series E interest when you ventually redeem the Series H bonds. (The H-bond interest, paid in cash semi-annually, is taxable in the year received.)

Series E and H bonds are among the safest investments around. But keep in mind that they pay only 6 per cent interest, subject to federal (but not state) income tax. There are other investments available - certificates of deposit at a savings institution, for instance - that pay considerably more with equivalent or only slightly higher risk.

Q: I own shares in a municipal bond fund, which I would like to use as collateral on a loan to be used to purchase shares in a common stock mutual fund. I plan to invest in the stock fund for only a short time during a market rise, then sell out and pay off the loan. How do I handle the bond fund interest, the stock fund dividends, and the loan interest on my tax return?

A: The basic rule is that a deduction is not allowed for interest paid on a loan to purchase tax-exempt securities - which is not exactly your situation.

But the IRS looks beyond the immediate transaction, and will not allow the deduction for interest expense in this case because of the inter-relationship of the loan and the tax-exempt interest. (The bond interest continues as nontaxable income.)

While you own the stock fund, regular dividends are reported along with other dividends (on Schedule B if you have $400 or more in total dividends). Capital gains dividends are reported on Schedule D; but if these are the only capital gains you have, you may simply report half of the total on Form 1040 (line 15 for 1977).

But mutual funds are not generally recommended as short-team in-and-out trading vehicles. Many of the funds will not accept telephone or wire orders for redemption so there may be a lapse of several days between your decision to sell and execution of the order.

And if you're talking about "short time" as a year or less, any gain will be taxable in full. This factor and the speculative nature of stock trading isn't consistent with the tax status and conservative ap-[TEXT OMITTED FROM TEXT]

Q: I am single and live in Virginia I have an IRA and a few H bonds; my sister is beneficiary. On my death, to what extent would these savings be taxed.

A: The H bonds would go into your estate along with any other assets you own. Under present law proach indicated by your ownership of a municipal bond fund. You should take a good look at your overall investment strategy, the IRA would be excluded if the proceeds go to your sister in "substanially equal" periodic payments lasting for at least 36 months after your death. But a lump-sum distribution would throw the IRA into your estate along with the bonds.

However, any federal tax liability would depend on the size of your total estate. In 1978 there will be an estate tax credit of $34,000, which equates to an exemption of $134,000. This amount increases each year until it levels out in 1981 at a $47,000 tax credit - equal to an exemption of over $175,000.

So unless your net taxable estate exceeds the equivalent exemption in the year of death, there would be no federal estate tax liability. (Of course your sister would be liable for income tax on the subsequent income from these asset.)

Virginia permits a much smaller exemption, but the tax rates are much lower than federal rates. For example, a net taxable estate of $50,000 left to your sister would incur Virginia inheritance tax of lass than $1,500.