Question: I have two Keogh plans with different insurance companies. Next month I will be 70 1/2 years of age and by law must take the proceeds and pay income taxes thereon. The insurance companies offer various payout plans, none of which is clearly the best. We could take the approximately $120,000 in a lump sum, half of it to go for taxes -- an option we obviously will not take. We would like to establish a trust fund of some sort for our grandchildren; I know there are plans that avoid estate taxes, but I don't know the income tax situation on such funds. What tax avoidance counsel would you give?

Answer: There is no way you can transfer the funds directly to a trust for your grandchildren and bypass your income tax liability. I do not recommend any of the payout plans offered by the insurance companies; while an annuity is a pretty good vehicle for accumulating Keogh money, the earnings assumptions used for calculating payout values are usually too conservative.

There are two alternatives you should be aware of. You may transfer the money in each Keogh plan to some other investment vehicle -- probably something conservative like a money market mutual fund or a money market account at a savings institution, perhaps a bond fund or an income-oriented stock fund.

With this alternative you would have no lump sum income tax liability, but would be liable for tax on the total withdrawals in each calendar year. Starting this year, you would have to withdraw each year a percentage based on your life expectancy when you start withdrawals -- this year at age 70 in your case.

A better option might be to take the entire amount from each annuity as a lump sum payment this year. Contrary to what you wrote, you would not have a 50-percent tax liability. Instead, you would compute your tax liability under the 10-year averaging technique, using IRS Form 4972.

I worked out the numbers for you, assuming a 1984 withdrawal of the entire amount. The total tax on the $120,000 comes to $19,500 -- still a substantial amount, but equal to 16.25 percent of the total. This is considerably better than the "half" you were concerned about.

That $19,500 bite would be your total federal income tax liability. The balance of slightly more than $100,000 is then yours to do with as you wish, without any further federal income tax liability (except of course for any future earnings on the money).

You may invest the funds wherever you wish: use all or part of the money to establish education trust funds for your grandchildren; or blow it all on a luxury trip around the world. The 10-year averaging technique is not as well known as it should be -- and it might be just the right answer for you.

Q: My bank collects the monthly payments on a note for me and deposits the proceeds in my account. On a couple of recent notifications, I saw that the deposit was "posted" several days after the payment was "collected." On inquiry I found the money didn't start drawing interest until the payment was posted, so it appears that I am being deprived of several days interest each month. Is this standard procedure or is a mistake being made?

A: According to a spokesman at the American Bankers Association, there is no rule governing this situation. They suggest the delay may be related to the normal clearance time for check deposits.

Particularly if the payment is received by them in the form of an out-of-state check, the bank may delay posting to your account until the check has cleared through the issuing bank and is paid.

However, I don't think this is a valid reason for the bank to hold up posting. I could accept a hold on the posted amount, which would prevent you from writing checks against that deposit until the collection clears.

But I think you should start to draw interest not later than the next business day after receipt of the payment by the bank. I suggest you discuss this with the bank manager; if you are losing interest earnings simply because the bank bookkeeping system is operating inefficiently, they should be willing to take steps to correct the problem.