Last week each of Merrill Lynch's Individual Retirement Account customers received a phone-or-write-your-senator letter from John L. Steffens, president of the giant broker's consumer markets division. The letter closed with the following: "Although we believe that the Senate bill is a major step in simplifying and lowering taxes, we also feel, as we are sure you will, that the IRA changes are far too restrictive. You are one of some 28 million Americans who have enthusiastically embraced IRAs in the past, and your voice can help preserve your IRA for the future."

Like Merrill Lynch, many critics of the Senate Finance Committee's tax plan are zeroing in on its treatment of IRAs. They claim that taking away IRAs is unfair since these plans have become the one tax break available to middle-class Americans who are trying to save more for retirement and don't have at their disposal the accountants and tax shelter specialists available to the rich. Sen. Alfonse D'Amato has even proposed delaying indexing in order to "save" IRAs.

We aren't going to enter the heretofore inconclusive debate about whether IRAs encourage saving. We don't have to. Some simple arithmetic shows that the Senate finance bill preserves 85 percent or more of the current value of IRAs for low- and middle-income Americans and leaves them with nearly 100 percent of the current value of IRAs after funds are withdrawn from IRA accounts.

What does the Senate package actually do with respect to IRAs? The plan eliminates the tax deduction for contributions to IRAs for workers already covered by private pension plans. Of the 28 million holders of IRAs, only about 8 million are not covered by retirement programs. There has thus been concern about the great majority that seem to lose out as a result of this package. Actually, the plan does not hurt these workers as much as it seems because, for all taxpayers, interest accumulated in existing and future IRA plans remains tax deferred. Furthermore, the plan's reduction of marginal rates to 15 percent and 27 percent has an advantage for these taxpayers.

Consider a family that has a 35-year-old head of household and a taxable income of $26,000. Under current law governing IRAs, a $2,000 deposit to saving is fully deductible, and the account accrues interest free of tax until retirement. Assuming a 10 percent rate of return and a constant tax bracket, when the head of household turns 65, the account will be worth $34,899. This amount is 2 1/2 times the value without IRAs.

Now let's consider the Senate Finance package. This family would find itself in the 15-percent bracket along with 80 percent of all taxpayers. So if it had $2,000 of gross income to put aside, this would amount to $1,700 net of tax. The Senate Finance bill would still allow interest to accumulate tax-free, so the account would grow to 85 percent of value under current law, or $29,664 at retirement.

But ending the story here ignores the fact that taxes must be paid when IRA accumulations are withdrawn. A couple that contributed $2,000 every year for 30 years and earned 10 percent would accumulate $361,887. Suppose they want to get the maximum after-tax benefits. Some elaborate calculations would show them that the best they could do would be to withdraw the funds over four years. After paying taxes at current rates, they would end up with payments worth $246,319 at the time of retirement.

Under the Senate Finance plan, 30 contributions of $1,700 accumulate to $307,604 after 30 years. That amount less $51,000 in contributions already taxed would be taxed at a maximum average rate of 27 percent if withdrawn immediately, leaving a value at retirement of $238,321. That's 97 percent of the after-tax value of $246,319 under current law. The gain at the withdrawal stage comes from the ability to get at the money right away without paying heavy taxes.

What about saving incentives? That depends. Taxpayers are going to have more money to spend after taxes. Some may go to savings, especially since borrowing is less attractive under the Senate plan, which disallows deductibility of most mortgage interest. For a family of four whose gross income is $42,000 a year, the Senate plan cuts taxes by $1,450. Contributing that amount annually to an IRA would increase savings by $262,368, without costing the family a cent in purchasing power -- not a bad exchange for the loss of only 3 percent of the value of an IRA plan under current law.

The lower tax rates in the Senate's tax plan make it attractive to economists and politicians alike, not to mention taxpayers. Upon reflection, one realizes that those same low rates mean IRAs are not slated as one of the bill's victims. As the debate moves to the Senate floor, there is no sense in delaying indexing or proposing some other means to try to get credit for "saving" IRAs. That's already in the bill.