An article about the new tax law in the October issue of Kiplinger's says that if you are 70½ or older, you can send your required minimum distribution from your IRA to a charity and not pay taxes on it. I have two questions: Can you also use this charitable contribution as a deduction if you itemize deductions? And are you required to transfer the gift directly to the charity or can you withdraw it and send the check to the charity?

Thanks for the timely questions. The Pension Protection Act of 2006, which Congress passed in August, focuses primarily on pensions and retirement savings. But it also included some new charitable-giving rules. The biggest news for retirees is the change in the law permitting charitable donations of IRA money. For 2006 and 2007, people age 70½ and older can give up to $100,000 per year from their IRA directly to a charity and avoid paying income taxes on the money.

These new rules are particularly helpful for retirees who need to take required minimum distributions from traditional IRAs that have increased significantly in value through the years -- and would owe a big income-tax bill on their withdrawals -- but don't need the money to live on. The contribution counts as your required distribution but isn't included in your adjusted gross income.

If you avoid the tax bill when you give away your IRA money, however, you can't double dip tax breaks and write off the charitable contribution, too. But you don't have to itemize to qualify, which finally gives retirees some tax benefits for charitable gifts even after they've paid off their homes and are taking the standard deduction.

The money must be transferred directly from the IRA trustee to the charity (contributions to donor-advised funds aren't eligible), which could cause some logistical complications. Talk with the IRA trustee and the charity first about what documentation you need to provide to make sure the charity knows who gave the gift and can give you a receipt for your tax records. The American Red Cross, for example, plans to create a letter of instruction that donors can give to their IRA trustee and the charity, which will make it easy for everyone to know whom the money is coming from and where it's going.

For more information about the tax-law changes, see What You Should Know About the New Pension Law.

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