(MONEY Magazine) – Taxes, by nature, are complicated and sneaky, but this one is ridiculous. If you have worked for 20 years or more for a company with generous benefits and particularly if you are nearing retirement, take a hard look at a confusing and potentially very expensive new tax when you file this year. It's a 15% excise tax that will be applied in addition to any income tax you might owe on what are called ''excess distributions from qualified retirement plans.'' And despite what you may have heard -- that it will affect only Guinness Book of World Records earners like Lee Iacocca and Michael Milken and other simple folk who draw down $10 million or more a year -- in fact it can hurt you and many other people who may not ever have earned more than $40,000 a year. What's more, when you file your 1988 tax return you must declare key decisions in regard to it. If you choose wrong, it could cost you tens of thousands in ^ tax dollars. The potential pain traces, not surprisingly, to the Tax Reform Act of 1986, which decreed that certain amounts paid out of pension and profit-sharing plans, Keoghs and Individual Retirement Accounts are ''excessive.'' So a 15% excise tax will be levied on any retirement distributions a taxpayer receives in a given year that exceed $150,000. Or if a taxpayer wants to draw out all of his accumulated money from a fund in a lump sum, he may take up to five times the $150,000, or $750,000. Anything beyond $750,000 gets hit with the 15% tax. Recognizing that this tax could retroactively punish millions of taxpayers who had been innocently accumulating sums greater than $750,000, Congress tossed in a lifesaver. It said that if you had accumulated $562,500 or more in all of your plans from benefits vested or nonvested by Aug. 1, 1986, you would be allowed to grandfather those funds so that you could take them all out as a lump sum and the extra 15% tax would not apply to them no matter how much they totaled. Further, you could elect to take them on an annual basis and still avoid the 15% tax, but only if you followed certain formulas and rules. Here is where life gets interesting. In addition to any lump sum you may have grandfathered -- an election you must make on Form 5329 and file with your 1988 return this year -- you may each year draw out $112,500, indexed for inflation (which would be $117,529 for 1988, up to about $122,000 for 1989). Anything over that is taxed at 15% -- unless you are clever in the method you elect to draw out those funds. When you make your election this year, you must select one of two ways of recovery: The first, the attained-age method, combines the worst features of the other and is so difficult to calculate that you probably should dismiss it. The other possibility is ''discretionary.'' With it, you may have either 10% or 100% of your annual withdrawals of grandfathered funds excluded from the 15% tax. One more point: after the election, you may shift from the 10% method to the 100% method, if your needs require, but once you do that, you stay at 100% from then on. So, you ask, why not simply make the election to grandfather and take the 100% option, which on the surface would seem to exclude everything from that infernal new tax? Because life in the world of taxes is not what it seems. The straight 100% option could be a very expensive mistake, depending on your retirement plans and needs (see the box on the previous page). If you are thinking that you couldn't possibly have accumulated $562,500 in your retirement plans by mid-1986, think again. ''A refinery operator for Exxon who never earned more than $40,000 a year but who worked for that company for 30 years is going to have to make the grandfather decision,'' says Paul Westbrook, president of Westbrook Financial Advisers, financial planners in Watchung, N.J. ''He's going to have well over $562,500 to consider.'' Another endangered species: self-employed people who have sizable Keoghs. The message is clear: check out all the amounts you have accumulated in each of your plans, both vested and nonvested as of Aug. 1, 1986. The administrator of your plans, in most cases your company, is required by law to make these valuations and report them to you, but only if you request them. Do so today and be sure not to overlook any plans. After Ron Meier, managing director of Seidman Financial Services in Houston, reviewed one client's case, he told the man and his wife that they didn't have to file anything because they had accumulated a bit less than the $562,500. But on the way out of the office, the woman asked if their IRA counted. It sure did -- and it pushed them well over the tax threshold. To sort through and analyze all of this and apply it to your particular condition and future needs, you should work with a professional, even if you normally do your own tax return. Choose well, since it is likely that many tax pros lack the ability to fathom this heinous new tax as well as to re-evaluate not only your retirement but also your estate plans. (Yes, excessive distributions and the 15% tax can even find their way into your estate.) A terribly time-consuming headache, you say, that may cost you an adviser's fee as high as $1,500. True, but never forget that one false move -- or nonmove -- could cost you instead, say, $46,000.

BOX: HOW TO MINIMIZE THE 15% RETIREMENT TAX BITE By making the right choices, you could save thousands of dollars on the new, maddeningly complicated 15% excise tax on excess retirement plan withdrawals. The table below shows what might happen to a long-term employee who plans to retire in 1991 at age 60. He had accumulated $800,000 in his plans, plus IRAs, by Aug. 1, 1986, and he may elect to grandfather all of those funds, as explained in the accompanying story. By 1991, when he starts to draw out money, the funds will have increased to $1.2 million, assuming an 8% annual rate of return. He then decides to take out all of his money in large chunks over six years. The table shows the amount of excise tax he would have to pay if he did not grandfather compared with what he would pay if he did (plus the effect of four different ways of withdrawing the funds, as described above). The choices really matter: results range from a $46,000 tax saving to a $3,000 tax bill.

CHART: NOT AVAILABLE CREDIT: Source: Seidman Financial Services, Houston CAPTION: NO CAPTION