A Couple Who Retires at 62 With $600,000 in IRAs and Lives on Rental Income for 11 Years Will Cross $1 Million by 73, and the First Required Withdrawals Land on Top of the Rent

Consider a hypothetical person who stops working at 62 with $600,000 sitting in IRAs and a rental property that covers their bills. For the next 11 years, the rent covers their living expenses, and the IRAs stay untouched.

If the accounts grow at roughly 4.75% a year, they reach about $1 million by age 73. That’s when required minimum distributions, the annual IRA withdrawals the government requires, must be taken each year. The first one is about $39,000, and it lands on top of the rent. Landlords face this collision differently than pensioners do. This article explains why and what choices a landlord has before it arrives.

Why Rent Gets Taxed Differently Than a Pension

A pension check is taxed almost dollar for dollar. Rent gets more room. Residential rental buildings are generally depreciated over 27.5 years using the straight-line method. In plain terms, the owner subtracts a piece of the building’s cost each year for wear and tear, and no cash leaves their pocket. So the rent they deposit and the rent they’re taxed on are two different numbers, and the taxed one is often a lot smaller.

In the ordinary case, rental income also generally isn’t subject to self-employment tax. If the rental counts as a business, the qualified business income deduction can reduce your taxable income by up to 20% of it. One way to qualify is an IRS safe harbor, which requires separate books and 250+ hours of rental services per year.

Rent counts toward the 3.8% net investment income tax, but only when modified adjusted gross income exceeds $250,000 for married couples filing jointly. Passive activity rules add another wrinkle. They can prevent a rental loss from offsetting other income, and the loss is suspended. It carries forward and generally gets released when the property is sold.

Modeling the Collision at 73

Here are the model assumptions. The couple collects $120,000 in rent after cash expenses. Depreciation deducts $20,000, leaving $100,000 taxable. The model uses 2026 joint figures (future years will be adjusted for inflation) and leaves out Social Security and the extra deductions for people 65 and older.

The $32,200 standard deduction brings taxable income down to $67,800, and since the 12% bracket runs up to $100,800, that leaves $33,000 of room before the 22% rate kicks in. Now add the $39,000 withdrawal. Taxable income climbs to $106,800, pushing $6,000 into the 22% bracket. A pensioner collecting the same $120,000 in cash would have started the year with far less room to work with.

Levers a Landlord Can Pull Before 73

Selling the Property

When you sell the property, the IRS takes back the depreciation benefit. That’s called depreciation recapture, and it’s taxed at up to 25%. It’s figured on depreciation “allowed or allowable”, so it’s owed even on depreciation the owner never claimed. The rest of the gain is taxed at long-term capital gains rates, and in 2026 the 0% rate covers joint taxable income below $98,900. A sale stacks years of gain into a single tax year. That argues for selling in a quiet year, and the years before 73 fit that description.

Exchanging Into Another Property

A Section 1031 like-kind exchange defers taxes when you reinvest the sale proceeds into another investment property. The tax is deferred, but the recapture transfers to the new property.

Holding Until Death

Heirs usually get a stepped-up basis. The property is treated as if they bought it for its fair market value when the owner dies, which generally wipes out both the built-up gain and the recapture. For many landlords, this choice shapes the rest of the plan.

Converting in Lean Years

A Roth conversion moves IRA money into a Roth account, and you pay tax on the converted amount now so withdrawals can be tax-free later. The cheapest years to convert are the ones when taxable rent is lowest, and for a landlord, that’s often a year with a vacancy or a new roof, more than any fixed calendar date. Where timing is truly flexible, plan accordingly. Putting repairs in a planned conversion year opens up more bracket room (we sized up that quiet stretch between the last paycheck and the first RMD in a free Roth window guide).

Planning for the Year Rent Doesn’t Arrive

Rent isn’t as guaranteed as a pension. The Census Bureau reported a national rental vacancy rate of 7.3% in the second quarter of 2026. A bad tenant, a special assessment or a weaker local market can also cut the income or stop it. Rising prices help the couple’s equity, with the Case-Shiller national index up 1.9% year over year, but higher values don’t automatically bring higher rents.

Managing a rental at 62 and managing one at 75 are also very different jobs. Professional managers usually charge a share of the rent they collect, and that fee comes straight out of the income the plan depends on. The budget should include the year the couple hands over the keys.

Deciding Before the First Withdrawal

Before the first required withdrawal, the couple must decide why they’re keeping the property; if it’s for income, the conversion years before 73 matter most. If it’s for the step-up, the plan is to hold it, and the IRA withdrawals simply have to fit around the rent. If neither answer fits, they may just be holding it out of habit, and the quiet years before 73 are the cheapest time to sell.

Contact [email protected] for any questions or corrections.