Tax effects on Keogh funds

I am approaching 59 1/2 and have three Keogh plans under different custodians. After 59 1/2 could I take out income from a mutual fund (one Keogh plan) and pay ordinary income tax with no other penalty and later take out the principal when I will pick up social-security benefits? Could I shift custodians to shelter the principal? R. R.

After 59 1/2 you can take out all of your cash from your three Keogh funds and calculate the tax on a 10-year averaging basis. But once you begin to take small amounts from one or more of your funds, the option of 10-year averaging will no longer be available.

You can, of course, take out you funds over a 10-year period -- or longer and gain about the same benefits as 10-year averaging, but with these two considerations:

1. Under 10-year averaging, the rate is figured as if you were single. When you add withdrawals from one or more of your Keogh funds over a period of time, these become added income, taxed at ordinary income rates. But if you are married, the added income will be taxed as joint income like any other income.

2. Funds left in a Keogh plan may not earn as much as investment funds outside the control of a Keogh trustee. Gains on money set aside in one or more of your Keogh funds prior Dec. 31, 1973, could be taxed at capital gain rates -- but consult a tax adviser for details. You cannot take 10- year averaging without including all funds; those set asid e before the end of 1973 must be included.