Smart Strategies for Retirees

Just remember, those distributions are included in your adjusted gross income, so you'll pay tax on that amount.

But if you're charitably inclined anyway and want to avoid beefing up your tax bill, consider donating that required minimum distribution to charity.

President Bush signed the IRA Charitable Rollover into law on Aug. 17 as part of the Pension Protection Act of 2006. Now, for 2006 and 2007, individuals age 70 1/2 and above can make charitable donations of up to $100,000 from their traditional IRAs (and Roth IRAs!) without having to count the distribution as taxable income. Donations from 403(b) plans, 401(k) plans, pension plans and other retirement plans are ineligible for this bonus tax-free treatment.

Here's how it works:

The donation has to be wired from your IRA directly to the charitable organizations to avoid the tax hit. You can't touch the money.

Only contributions made between Jan. 1, 2006 and Dec. 31, 2007, are eligible for tax-free treatment.

Contributions must go directly to a public charity. That means donor-advised funds, certain private foundations, charitable remainder trusts and gift annuities do not qualify. So check your alma mater or favorite hospital to make sure it's a public charity before you donate.

You must get written documentation of your IRA rollover contribution your charity.

One last note on the IRA front: There are plenty of retirees who are forced into early retirement and get lump-sum payments of pension benefits and/or 401(k) plan accumulations, severance packages, stock options and other benefits.

Typically, you'd want to just roll all that stuff back into another tax-deferred account. But if you're not going back to work, your income tax bracket may be much lower, so it might make sense to start withdrawing some of that money. Talk to your adviser so you can make the best decision for your situation.