Q: I am a single, 44-year-old self-employed consultant. Except for a small IRA, the only retirement program I have is a share in a plan with a former employer (seven years of contributions). If I withdraw now, I can receive $13,000; if I leave the money in the plan, I will receive $3,100 a year after I reach 65. Because most of the contributions were tax-sheltered, I would have to pay tax on the withdrawal. Is it better to leave funds in a vested retirement plan or take them out?

A: There is no blanket rule -- each case must be examined separately. Let me run through the numbers in your particular case and see how they come out.

Let's assume all of the contributions are tax-sheltered, and that you would thus have to report as income the entire $13,000. (If any part was previously taxed, that would only change the situation in your favor.)

Because you were a participant in the plan for more than five years, you are eligible to use something called 10-year averaging -- a special provision in the tax code for lump-sum distributions from retirement plans.

The total federal income tax on a distribution of $13,000 would be well under $1,000 -- regardless of the amount of other income you have or the tax bracket you are in. The postmark on your letter indicates that you're a Virginia resident, so the applicable Virginia tax would take another $350 or so.

You should end up with about $11,750 net after taxes. Let's say you invested that money in a Virginia zero-coupon bond maturing at about the time you reached 65. A Virginia municipal bond would have no tax consequences during the intervening years, so it would work just like leaving the money in the retirement plan.

As I write this, there is a Virginia zero-coupon available, due in 2005, rated AA and yielding close to 10.5 percent when compounded. If you were to invest the entire $11,750 in these bonds, you would get about $88,000 in 2005, when you're 64.

At that time, even if your money only brought 6 percent, you would get more than $5,000 a year -- substantially more than the $3,100 the retirement plan would pay you. If interest rates are comparable then to today's rates, a certificate of deposit would bring you more like $7,500 a year. And the $88,000 principal would remain in your estate for your heirs, whereas normally any imputed principal value in the retirement plan would be lost at your death.

The right move seems evident in your case.

However, I caution other readers that different circumstances might bring different results. If you're faced with a similar decision, you must go through these steps for the specific numbers in your particular case to arrive at comparative values.

Q: In your April 29 column, you mentioned that stock willed to a spouse would be picked up at the market value on the date of death. Would this apply also to shares of stock owned jointly with right of survivorship?

A: In the case of stock that is owned jointly with right of survivorship, for tax purposes each spouse is considered to be the owner of half the shares.

On the death of one spouse, the survivor becomes the owner of the entire holding. But he (or she) actually has inherited only half the shares, because he owned the other half in his own right before the death.

So the cost basis for all the shares is the total of two components: the original cost of half the shares (the half assumed to have been owned by the surviving spouse) plus the value on the date of death of the other half (the half assumed to have been owned by the spouse who died).

The logic is that stepped-up value is assigned only to those assets actually inherited. Because the surviving spouse is presumed to have been the owner of half before the death, only the other half is inherited and can pick up the higher market value.