Q: I have a $50,000 deferred annuity that is my emergency savings fund; of that amount, $20,000 is interest accrued since purchase. My brothers and sister are named as beneficiaries. If they inherit the annuity at my death, must they pay income tax on that interest, which was deferred during my lifetime?

A: Several issues are raised in that deceptively simple question. Assuming you did not start withdrawals from the annuity while still alive, the value of your contribution to the contract (generally the original cost) would be included as part of your estate.

(Of course, there would be no liability for federal estate tax, or even for filing a federal estate tax return, unless your total estate exceeded the current exclusion: $400,000 for 1985, $500,000 for 1986 and $600,000 for 1987 and later years.)

For annuity contracts issued after Jan. 1, 1985, the entire value of the annuity would have to be withdrawn by the beneficiaries within five years from the date of the annuity holder's death. Older annuities might have different provisions. In any case, your brothers and sister would have to report on their individual income tax returns -- and pay tax on -- that portion of payments received each year that represented earnings accrued during your lifetime (as well as any additional amounts earned after your death).

This can be even more complicated than it sounds. The local agent representing the company that issued the policy might be able to help; but it is likely that your siblings would need professional tax advice, at least the first year, to establish the pattern. The easiest solution -- though perhaps a little more costly in taxes -- would be for them to take a lump-sum distribution of the entire proceeds immediately after your death.

Q: I am the widow of a federal government career civil servant and have been receiving a survivor annuity benefit since 1969. My husband also was eligible for Social Security benefits; I will be eligible for his benefit when I reach age 60 shortly. If my Social Security benefits are offset dollar-for-dollar against my civil-service survivor annuity and I receive nothing, will it be a waste of time to apply for Social Security? Or will the offset be taken off the civil-service annuity, which would decrease my taxable income and give me nontaxable Social Security instead?

A: I've got some good news for you. You will continue to receive the full amount of your survivor civil-service annuity benefit and the full amount of your survivor Social Security benefit without offset. (Of course, the reduction in benefits for starting at age 60 instead of waiting until you're 65 will apply.)

The dollar-for-dollar offset applies only to a person eligible to receive Social Security benefits as the surviving spouse of a covered worker who also is eligible to receive federal civil-service retirement benefits based on his or her own government service.

For someone like you who qualifies for survivor benefits of both kinds -- that is, as the surviving spouse of a federal worker who was covered by Social Security based on other employment -- there is no offset. So trot on down to your nearest Social Security office and get your application in.

Following my mid-August column on the recent resurgence in popularity of mutual funds and the corresponding proliferation of new funds of all kinds, several people complained about the confusion this very proliferation has introduced into the task of selecting an appropriate fund.

Now comes help -- not in terms of finding the right fund for your needs, but in understanding the industry's special jargon. In addition to explaining what a mutual fund is and how it operates, there is an explanation of the various types of funds and some suggestions on how to find the right one for you.

Write to The Investment Company Institute, 1600 M St. NW, Washington, D.C. 20036 and ask for its free booklet, "A Translation: Turning Investment-ese into Investment-Ease." Both potential and current owners of mutual fund shares should find this 20-page booklet useful.