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I was thinking of withdrawing the maximum amount from my 401k (up to $46700+/-) every year, use what we need to live on and invest the rest, so that I will only pay in the 15% tax bracket and not the $25% tax bracket on an income over $70700.

Let's tweak a bit. As Gene noted, why take the money out of a retirement account just to invest it? How about this, assuming you're over 59 1/2 and no longer working for the 401(k) plan sponsor.

First, roll your 401(k) into a traditional IRA. Make sure you do a direct transfer from the plan to the IRA custodian without taking possession of the money. This is a tax-free transaction. Now each year you figure out how much you need to live on and pay the taxes on your withdrawal. Then you look at what's left of the 15% bracket and convert an amount to a Roth IRA. (You will also need to withdraw enough money to pay the taxes on the conversion.) That way the invested amount will grow tax-free, assuming you follow the rules for qualified distributions from Roth IRAs.

Rule Your Retirement Home Fool
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