Some did `lose' IRA, but it works for many. RETIREMENT PLANNING

ABOUT 20 percent of Americans lost their tax deductions for contributions for individual retirement accounts in the 1986 Tax Reform Act. That means about 80 percent of them still have at least a partial deduction, and many of those people are still eligible for the full deduction.

Then why do so many people still believe Congress killed the IRA?

Possibly it's because the income groups that were taking the most advantage of IRAs before tax reform were the ones most likely to lose the deduction. For these upper-income people, the $2,000 annual contribution wasn't so much part of a retirement kitty as it was a tax shelter.

``The new rules created a problem for people if it had just been used to shelter a lot of money,'' says Lynn Greene, a financial planner in Durham, N.C. ``They couldn't do that now. But for a lot of people, it's still deductible.''

Now that upper-income people don't have the deduction anymore, there are other places they'd rather put their money - places that offer fewer restrictions and more flexibility, both before and after retirement. For them, Congress did indeed ``kill'' the IRA.

``Instead of a nondeductible IRA, many of my clients are going into a single-premium deferred annuity or a flexible-premium annuity,'' says Steven Enright, a financial planner with Seidman Financial Services in New York. ``They get the same benefit of the tax deferral as an IRA, but they have a couple of advantages: They don't have the paper-work problems, and if the money is in an IRA, you have to IRAB12B7 start making withdrawals at age 70. You don't have to do that with an annuity.''

``The IRA has been eliminated for most individuals at high income levels,'' agrees John Markese, director of research at the American Association of Individual Investors. But for many others, it's still a vary feasible option.

To be specific, people who are not covered by a pension plan where they work are still eligible for the full IRA deduction, no matter what their income. (Even if they don't participate in the pension plan, however, they are considered covered, so income tests apply. Also, if one spouse has a pension, both are considered covered, too.)

But even people who are in a pension plan can still make a fully deductible contribution if their income is below $40,000 for a joint income and below $25,000 for singles.

If joint income is between $40,000 and $50,000, the couple can take a partial deduction, while the range for singles is from $25,000 to $35,000.

At any income level, anyone - even those covered by a pension - can still put up to $2,000 into an IRA every year. They just can't deduct it if they're above the income limits.

But they can enjoy the benefits of tax-free compounding and, as long as they don't make premature withdrawals, have IRA money in as many places as they like.

Some of it could be in a variety of accounts at a bank or thrift; some could be in a mutual fund or several funds; some could be managed by a broker to buy stocks and bonds; and some could be in an insurance policy. This last, however, would be a waste of a tax deduction, since you already get tax-free buildup of assets within an insurance policy.

``I encourage my clients to fully fund their IRAs whether they can deduct them or not,'' Ms. Greene says. ``Tax-free compounding of money is very attractive, particularly at a young age.''

If you are in the 28 percent tax bracket, for example, and you put $2,000 into a fully taxable investment every year and could get 10 percent interest out of it, you'd have $209,960 at the end of 30 years. But if the same money went into an IRA, it would add up to $277,359. That additional $67,399, put in an income-oriented investment with a yield of 8 percent, would spin off an extra $5,391 of income every year.

Tax reform did add one possible disincentive to opening or maintaining an IRA: paper work. Because some people will have deductible and nondeductible IRA contributions, they now have to keep separate records for each type.

Then, when they begin making withdrawals, they have to tell the Internal Revenue Service the total value of their IRA for the year of the distribution, and tell their IRA custodian - banks, broker, or mutual fund - the total value of the nondeductible contributions.

All this might be a factor in deciding on a custodian. Many of them have set up special recordkeeping procedures to keep track of all this for you and can present everything you need to know - and need to tell the IRS - on one statement.

The new IRA rules have prompted other changes in the way people save for retirement. More eligible workers, for instance, are now signing up for deferred compensation plans, like the 401(k). But Congress managed to make some changes there, too.

While the 1986 law lowered the maximum annual contribution from $30,000 to $7,000, it also stuck in a cost-of-living provision, so the maximum will increase each year to keep up with inflation. For 1988, the first year the rule is in effect, the maximum is $7,313.