Question: Would you recommend that I sell or hold an investment I made in 1977 in a tax-exempt bond fund paying 6 percent? It is now worth about 58 percent of its original cost. I am in the 39 percent tax bracket.

Answer: Using a \$10,000 original investment for the purpose of illustration, my trusty calculator comes up with the following numbers:

If you sell the shares now, you will generate a long-term capital loss of \$4,200. You can use 50 percent of that loss on your tax return; in the 39 percent tax bracket that net \$2,100 loss will give you a federal tax saving of \$819.

High-quality, tax-free unit trusts now are yielding around 11 percent. By investing the \$5,800 derived from redemption of the fund plus the \$819 tax saving -- a total of \$6,619 -- in such a trust, you can get an annual return of approximately \$725. That compares favorably with the \$600 a year you are now getting.

But if your original investment was in a unit trust rather than a mutual fund, you have another calculation to make. If you were to hold the units until maturity, you could expect to get your initial \$10,000 investment back.

So you have to divide the \$4,200 loss of capital (because of the sale now) by the number of years remaining until maturity. If that is say, 20 years, you should add \$210 a year to the \$600 in coupon yield -- and then the picture changes dramatically.

A sophisticated investor might want to use only the present value of those future annual incremental increases in the computation. But for the most people, I think the gross numbers are close enough.

Q: I am employed by a corporation and covered by their retirement plan. I also serve as a member of the corporate board of directors and receive a monthly fee for attending board meetings. I have been told that the IRS considers directors' fees to be self-employment income and that I am eligible to open an IRA or Keogh retirement plan. Is this information correct?

A: Most of what you have been told is correct. A corporate director's fee for attending board meetings is income from self-employment. This determination is not affected by your status as an employe and resulting coverage by the corporation's retirement plan.

Usually a self-employed individual is eligible for either Keogh or IRA, but your participation in the corporate retirement plan eliminates the IRA option. However, you do qualify for a Keogh plan for the income from director's fees.

Q: I have learned that, under the Maryland Uniform Gifts to Minors Act, parents may transfer \$6,000 worth of assets (\$3,000 for each parent) each year to their children as gifts. I have also learned that in the case of stocks, after the gift, the parents can still retain the shares in their name. But when they well the stock, any gain can be reported on the children's tax returns. Can you verify whether this is true?

A: Well, it's almost true, but not quite. Parents can make gifts of \$3,000 per year to each child -- \$6,000 if both parents agree -- without gift-tax liability.

Authority is the federal gift tax statute; the Maryland Uniform Gifts to Minors Act provides the mechanism for the actual transfer.

After the gift, income generated by the transferred asset (cash, stocks, bonds, mutual funds) is income to the child. Capital gain or loss on later disposition is similarly attributable to the child, and should be reported on the child's tax return.

But ownership of the gift asset goes to the child and cannot be retained by the parent. What may have confused you is the rule that stocks cannot be owned directly by a minor child; instead, the stock must be registered in the name of an adult, usually a parent, as custodian for the child.

The usual form of registration is "John Doe as custodian for Jane Doe under the Maryland UGMA." But the appearance of the parent's name on the stock doesn't change the fact that the shares are the property of the child.

After the gift, the parent cannot reclaim the asset given. The income, and the proceeds of any later disposition, must be used for the child's benefit.