QUESTION: My broker recommended that I invest in municipal bonds because he says I'm in the 39 percent tax bracket. But according to my 1978 tax return, I didn't pay a tax that was anywhere near 39 percent of my income. Can you explain?

ANSWER: The tax bracket you're "in" doesn't refer to the percentage of your income that goes to Uncle Sam. References to your tax bracket really mean your "marginal" tax bracket -- the tax rate at which the top of your income is taxed.

When discussing the tax impact of investments, brokers talk about that marginal tax bracket because your investment income is "additive." That is, it represents income source -- wages, self-employment income, retirement pay -- which usually provides little opportunity for tax maneuvering.

If you move investment capital from a taxable source (such as a savings account, certificate of deposit or corporate bonds) to a tax-free source (generally municipal bonds), you are moving the income out of the 39 percent tax bracket. This is because you are not disturbing or modifying your other income, which comes in at the lower tax steps or brackets.

The message your broker is giving you is that a taxpayer in the 39 percent bracket has to earn 10 percent in taxable income to retain (after federal income tax) the same number of dollars as is derived from a tax-free return of 6.1 percent -- a yield generally available today on high-quality tax-free bonds.

There are other factors to consider when deciding between taxable and tax-free investments. For example, if you expect to retire in a year or two with a substantial drop in income, it might be wiser to buy corporate bonds now and lock up a historically high yield even at the cost of a higher tax bite for a short time.

If you prepared your own tax return, you should know which tax bracket you are in.If not, you can find out by looking up your taxable income in Tax Rate Schedule X, Y, or Z (whichever fits your filing status) in the IRS instruction booklet. "Taxable income" is the amount found on line 3 of Schedule TC of your federal tax return.

If your return doesn't include a Schedule TC, start with the number on line 10 of Form 1040A or line 34 of Form 1040. Multiply the total number of personal and dependent exemptions by $750 and subtract the result from the line 10 or line 34 figure to arrive at taxable income.

Q: In 1978, I had to cash in a certificate of deposit before the due date, and lost some interest as a result. But the tax statement from the bank shows the full amount. There must be a way to account for the part that was lost

A: There is. The bank's tax statement (Form 1099-INT) should show both the total interest paid and, in a separate box, the amount of the forfeiture.

You report the full amount of interest income on Schedule B if you had more than $400 total interest in 1978, and otherwise on line 9 of form 1040. (You can't use the 1040A if you are reporting a forefeiture of interest.)

Then on line 26 of Form 1040, enter the amount of the forfeiture as shown in box 3 of the 1099-INT. The amount on line 9 gets added to income, and the amount on line 26 eventually gets subtracted from income.

So you end up paying tax on only the net amount of interest earned -- but you get there in a roundabout way with two separate entries.

Q: There seems to be a great deal of confusion about what the new tax law did regarding the upper limit on IRA (Individual Retirement Account) contributions. Several financial publications have said that the limit has been raised to a $7,500 annual contribution, comparable to a Keogh plan. Can you shed some light?

The normal limit on IRA contributions has not been raised. The ceiling is still 15 percent of eligible earnings up to a maximum of $1,500 (or $1,750 for a combination of wage-earner and spouse IRA's).

What the new law did was to authorize using an IRA as a mechanism for a simplified employer pension plan. Employer contributions to such a special IRA may amount to 15 percent of employe earnings, with a ceiling of $7,500.

Although the simplified pension plan was authorized by the Revenue Act of 1978, implementation must await the publication of governing regulations by the IRS, which hopes to have them in the field by early or mid-summer.

As you can see, however, the new $7,500 ceiling (on employer contributions) is separate from, and has no effect at all on, the old $1,500 maximum for employe contributions to an IRA, which has not been changed.