An IRA -- Individual Retirement Account -- is a sort of do-it-yourself pension plan for workers whose employers don't have pension plans.

Rep. Claude Pepper (D-Fla.), chairman of the House Committee on Aging, has proposed legislation that would greatly expand tax-free IRA investments to cover everybody -- those with pension plans as well as those without.

And the monetary limits of IRAs would also be expanded. As it stands now, if your employer does not have a pension plan, you may elect to set aside 15 percent of your annual wages or $1,500 (whichever is less) in an IRA that is free of current income taxes.

Under the proposed legislation, the 15 percent limit would come off and a married couple could invest as much as $3,000 a year tax-free. Singles could invest up to $2,500.

Right now, people whose employers already have a pension plan, even if it's a tiny, ineffective plan, cannot invest in IRAs. Under the proposed legislation, couples working for employers with plans could invest up to $2,500 a year. Singles could invest up to $2,000.

The proposed limits would cover situations in which either both partners worked and put away money for retirement or only one partner worked. The limit would be $2,500 per couple if one or both partners already were covered by an employer's pension plan and $3,000 if neither partner was covered by an existing pension plan.

Originally, IRAs were set up by Congress to encourage low-income people who were not covered by pension plans to set up their own.

History shows that it isn't working out that way. Only 1 percent of the people who are not covered by pension plans and make less than $15,000 are investing in IRAs. And 53 percent of the people who make more than $50,000 are putting the legal limit into IRAs. So, well-off investors are going for it; lower-income workers are not.

To rectify this imbalance, Pepper is proposing a strong income tax sweetener. Under the proposed plan, if you put money into an IRA, you would get a 25 percent tax credit or tax deduction (the latter would work better for higher-income taxpayers; the former would be better for lower incomes).

By putting, say, $2,000 a year into an IRA, you would get $500 a year lopped off your taxes. If you didn't pay any tax, you'd get the $500 back as a cash refund.

This kind of a tax break fits neatly into President Reagan's philosophy of giving workers tax cuts to help bolster the economy. In this instance, it would be an anti-inflationary form of tax cut. Workers would be encouraged to put their money into long-term savings instead of purchasing goods and bidding up prices.

Under the IRA system, you must leave your money in the account until age 59 1/2. If you withdraw the money early, you suffer a sizable tax penalty.

The proposed legislation is intended to add an even stronger incentive for a working person to put money away for retirement. Aside from not having to pay current taxes on the amount invested, the account holder is not taxed on interest earned by IRA savings until retirement, when the tax bracket is expected to be lower and the beneficiary is eligible for special tax treatment.

Q. My husband and I are both 75 and retired. Our income consists of Social Security, a small pension and some interest from a savings account. How much income do we have to have before we are required to file an income tax return?

A. A married couple, with both partners 65 or older, does not have to file a federal tax return if gross income (excluding Social Security, which is not taxable) is less than $7,400.

However, if either partner worked part-time during the year, it would be wise to file a federal tax return to get back any tax money that might have been withheld from paychecks.

Not having to file a federal tax return does not necessarily mean you don't have to file a state return. Some states have different income levels for filing requirements. Check with your local tax office.

Q. I decided to cash in my old savings certificates that was paying only 8 percent. In the process, I was assessed a penalty on the earned interest. Is there any way I can recoup this lost interest through a tax deduction?

A. Yes, you can deduct any interest penalties imposed for early withdrawal from a savings certificate. And you don't have to itemize to get this deduction. It's open to everybody.