Q: As an employe of the federal government, I have been paying 7 percent of my salary into the federal retirement fund for a number of years. What I have been trying to determine -- without luck, so far -- is whether I would be permitted, when I leave the government for the private sector, to take the money I've already paid in and roll it over into my IRA. I know I would have to pay tax on this money once again when I withdraw it from the IRA 25 or 30 years from now, but my rough calculations indicate that the tax-free buildup over the years would make it worthwhile.

A: You're finally running into luck -- but it's both good and bad. The good luck is that you have your answer; the bad luck is it isn't what I'm sure you were hoping for. You may not roll over into an IRA any part of a lump-sum distribution that represents funds you contributed to the pension plan -- dollars on which you paid current income tax in the year of the contribution.

There are attractive alternatives, however. This money comes to you without any tax liability when you leave government service because it already has been reported as income and taxed. So you can take the entire chunk and invest it someplace where it can grow tax-free until retirement time.

One option is to purchase a single-premium deferred annuity. If you plunk down $20,000, it grows, tax-free, until you're ready to draw it out. Most annuities guarantee a minimum yield but offer a current yield considerably higher than the minimum. At retirement time, you can either convert the policy into a lifetime, guaranteed income or withdraw the entire accumulated amount in a lump sum, paying tax only on the amount in excess of your original deposit.

Another alternative is the purchase of zero-coupon municipal bonds, selected to mature about the time you anticipate retirement. These bonds may be bought at a substantial discount from face value, with the purchaser collecting the face value at maturity. There is no federal income-tax liability at any time; and with your D.C. residence, you would pay no state tax either. (Residents of other states might have to report the accrued interest annually, unless the bonds were issued by agencies of their home state.)

Q: I have written a book and incurred some expenses in 1985, such as stationery, postage, phone calls, etc. My understanding is that I cannot claim any deductions for these expenses on my income-tax return until I receive some income from my literary work. My question: If I sell the book in 1986, can I still deduct the expenses incurred in 1985?

A: I should start by answering a question you didn't ask. Your understanding about deducting current expenses is not correct. This is a rather confusing area of the tax law, and I know I'll get letters disagreeing -- but let me give you my interpretation.

If you are in the business of being an author, you may claim your 1985 expenses on your 1985 tax return using Schedule C (Profit or Loss from a Business or Profession), regardless of whether or not your business produced any income. However, some courts have ruled that in order to be considered as in a business or profession, you have to "hold yourself out" to the public as offering goods or services for sale.

If this book is an isolated instance, and you do not intend to write as a business but do intend to generate income from the book, then you still may deduct your current expenses. However, the expenses may be deducted only on Schedule A as an itemized deduction, a miscellaneous expense incurred for the production of income. Obviously, this is possible only if you itemize.

If you do not write as a trade or business and did not write the book primarily for the production of income, then your writing is classed as a hobby. In that event, your deduction for expenses (taken on Schedule A) is limited to the amount of income generated by the hobby but reduced by those expenses that would be otherwise deductible (such as interest or taxes).

If this third description fits you, then the answer to your question is "yes" -- you may accumulate or capitalize expenses incurred in earlier years to be deducted in the first year in which income is produced.