Question: I have a 30-year-old daughter with Downs Syndrome, whom I have regularly claimed as a dependent. However, in 1981 she received over $1,000 in income, consisting primarily of $900 in wages at the workshop she attends (plus a small amount of interest). Is there any special waiver of the $1,000 income limitation for a retarded child?

Answer: A sympathetic researcher at the IRS checked this out for me. Unfortunately, her findings confirmed my initial reaction: There is no special exemption that would permit you to claim your daughter as a dependent for any year she has over $1,000 in income.

The IRS can do nothing but interpret the law. But Congress could help by writing into the law a tax exclusion for earnings (perhaps up to an annual ceiling) from sheltered workshops.

If that income was to be declared exempt from tax, then it would not count towards the $1,000 ceiling, since only taxable income needs to be included.

Looking for yet another tax-reduction "loophole"--no matter how worthy--runs counter to the current movement to tighten up the tax laws. But you may want to write to your congressman anyway to ask for help. In fact, a concerted drive by various organizations devoted to the handicapped--like the Association for Retarded Citizens--might be the most productive way to go.

Q: My wife and I plan to retire in about three years, by which time we will have about $30,000 in our Individual Retirement Accounts. Our taxable income now is around $40,000, but will drop to $20,000 after retirement. Wouldn't we be better off taxwise if in the last full year of working we withdraw all the IRA funds and then income-average for that year? It appears to me that although it would put us in a higher tax bracket, we would only be paying tax on $6,000 of the $30,000 IRA money, since the income would be averaged over five years. We could then invest the money in tax-free securities. An alternative would be to withdraw $5,000 a year for the first five years after retirement, not income-averaging but paying the necessary tax each year.

A: It doesn't work the way you think. When you income-average, you figure the tax on the extra income as if only one-fifth had been earned in the current year. (That isn't precisely correct, but it's close enough for this explanation.)

By adding only one-fifth to your regular income, you keep the extra income in a lower tax bracket. But then you multiply the extra tax by four--so you don't end up paying the tax on just part of the income, but instead pay the tax on all the income, at a lower tax rate.

I suggest waiting until you retire; then withdraw a part of the accumulated IRA funds each year as you need it. There's no point drawing more than you need in order to reinvest the surplus; if you don't like your present IRA investment you can move the funds elsewhere without tax consequences.

At age 70 1/2 you must withdraw each year the amount mandated by the IRS life expectancy tables. At that time, you would have to look for another investment for whatever you don't spend. That would be the time to weigh tax-frees against alternatives, based on then current tax rates and market conditions.

Q: In addition to my regular full-time job, I am a self-employed musician on weekends. Through 1981 if my self-employment income was less than $750 I could put the whole amount into my Keogh, disregarding the 15 percent limitation--but only if my adjusted gross income was $15,000 or less. What happened to this gross income ceiling under the new tax law? I haven't been able to get an answer anywhere, including the IRS.

A: I have the answer for you, but you won't like it. Nothing happened--the $15,000 gross income limitation is still in place.

So if the income from your regular job exceeds $15,000--and I guess it does or you wouldn't have asked the question--you're still bound by the ceiling of 15 percent of earnings from self-employment.