Don't forget to take that IRA distribution

— -- No matter how much you love the holiday season, it's inevitable that certain events will diminish your good cheer. The neighbors' inflatable Santa becomes untethered and lands on top of your car. Your adult son e-mails that he plans to spend Christmas at an ashram. You realize that you have to take money out of your individual retirement account, even though its value has declined since the end of 2010.

That last joy-buster is confronting a lot of seniors this year. As of Nov. 11, two-thirds of Fidelity Investment's 500,000 customers who are required to take distributions from their IRAs hadn't taken one, says Ken Hevert, vice president of personal retirement products for Fidelity.

If you're 70½ or older, you're required to withdraw a minimum amount from your IRA every year, based on your age and the amount in the account at the end of 2010. If you have a 401(k) plan with a former employer, you're required to take a minimum withdrawal from it, too.

There are a couple of reasons so many seniors haven't taken withdrawals from their IRAs, Hevert says. In 2009, Congress enacted a law allowing seniors to skip distributions, a move designed to help them recover some of their bear-market losses. The reprieve was limited to 2009, but some IRA owners are still confused about whether the rule was reinstated.

In addition, this has been a rocky year for the stock market. Seniors who are worried about running out of money may be reluctant to lock in losses by taking a withdrawal.

But failing to take your required minimum distribution by Dec. 31 will leave your IRA as deflated as that sad-looking Santa draped over your car. The penalty is 50% of the amount you were supposed to withdraw. That's far worse than selling mutual funds that have lost value, Hevert says.

How to make the withdrawal less painful:

•Consider a charitable rollover. Seniors age 70½ can contribute up to $100,000 from their IRAs directly to charity. This contribution will be counted towards your minimum distribution. The donation isn't deductible, but the money won't be included in your adjusted gross income. Reducing your AGI could lower taxes on your Social Security benefits, or make you eligible for tax breaks that are tied to your AGI.

A charitable rollover will lower the total value of your IRA, which means lower required minimum distributions going forward. This tax break is scheduled to expire at the end of this year.

•Re-invest your withdrawal. Just because you're required to take a distribution doesn't mean you have to spend the money, says Steve Vernon, a fellow with the Society of Actuaries and author of Recession-Proof Your Retirement Years. You can re-invest the money in mutual funds or other investments, he says.

Alternatively, you can take an in-kind distribution. Instead of taking your distribution in cash, ask your IRA provider to transfer the equivalent amount of stocks or mutual funds to a taxable account. You'll still have to pay taxes on value of the withdrawal, but you'll avoid selling your investments at a loss.

•Convert to a Roth IRA. This won't solve your tax problem for 2011, because you must take your minimum distribution before you convert, Hevert says. Once you've converted, though, you'll never have to take distributions again.