J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

41.8 How Keogh Plan Distributions Are Taxed

Distributions from a Keogh plan generally may not be received without penalty before age 59½ unless you are disabled or meet the other exceptions listed in 7.15. If you are a more-than-5% owner, you must begin to receive minimum required distributions by April 1 of the year following the year in which you reach age 70½, even though you are not retired; penalties may apply if an insufficient distribution is received (7.13).

A lump-sum and other eligible distributions (7.7) may be rolled over tax free to another employer plan or IRA. For participants born before January 2, 1936, 10-year averaging may be available (7.2). Pension distributions from a Keogh are taxed under the annuity rules discussed in 7.25, but for purposes of figuring your cost investment, include only nondeductible voluntary contributions; deductible contributions made on your behalf are not part of your investment.

If you receive amounts in excess of the benefits provided for you under the plan formula and you own more than a 5% interest in the employer, the excess benefit is subject to a 10% penalty. The penalty also applies if you were a more-than-5% owner at any time during the five plan years preceding the plan year that ends within the year of an excess distribution.

Other rules discussed in 7.1 − 7.16 apply to Keogh plans as well as qualified corporate plans.

After the death of a Keogh plan owner, distributions to beneficiaries may be spread over the periods discussed ...