Key Takeaways
- Kiyosaki divides income into earned, portfolio and passive categories.
- He associates paychecks with the poor and passive income with the rich.
- U.S. tax treatment depends on the activity and type of income involved.
Three Income Types, According to Kiyosaki
A paycheck, an investment return, and income from a business can have different tax consequences for the person receiving them. In a Sept. 23 post on X, Rich Dad Poor Dad author Robert Kiyosaki used earned, portfolio, and passive income to describe what he sees as a dividing line between poor, middle-class, and rich people.
Kiyosaki associated earned income with wages from a job and portfolio income with the investments held by many middle-class savers. He described passive income as money that comes in without working. The three labels serve his broader argument that learning the language of money can change how people think about work and wealth. Kiyosaki wrote:
“Study, learn the words of money, because the best news is, words are FREE.”
His reference to 401(k)s and individual retirement accounts follows earlier remarks questioning stock-heavy retirement plans. In the latest post, he places savers who use those accounts in his portfolio-income category. A retirement account, however, is a way to hold investments; the account itself is not a separate type of income.
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Where His Tax Claims Need Qualification
Kiyosaki asserted that earned income is often taxed most heavily and passive income is often taxed at zero. Under IRS passive activity rules, passive activity generally involves a business in which a taxpayer does not materially participate or a rental activity. The IRS generally treats interest, dividends, and gains on investments as portfolio income for those rules, even when the investor does no day-to-day work to receive them.
The tax result also depends on the transaction, deductions, and the taxpayer‘s circumstances. Investment income and income from passive activities can be taxable; some higher-income taxpayers may owe an additional tax on net investment income. Kiyosaki’s statement that passive income is often taxed at zero describes his view, not a general U.S. tax rule.
Retirement accounts add another distinction to his comparison. Money withdrawn from a traditional 401(k) is generally taxable unless it is rolled over, while qualified Roth distributions can receive different treatment. The IRS rules on retirement distributions therefore do not support assigning every 401(k) or IRA investment a single tax rate.
How the Framework Fits His Investments
Kiyosaki has long connected his preference for income-producing property to the financial ideas in his books. In a Get Rich Education podcast appearance, he discussed real estate holdings financed with debt and described the borrowing as part of his investment strategy. Property can generate rent, but the amount an owner keeps depends on expenses, financing costs, and applicable taxes.
He made a similar distinction between holding an asset and seeking recurring cash flow last November. After describing a bitcoin sale, Kiyosaki outlined plans to put the proceeds into surgery centers and a billboard business. He estimated that those investments would produce monthly income, presenting the proposed move as an example of his approach rather than reporting an established return.
That distinction applies to crypto, too: Receiving tokens as compensation or rewards and realizing a gain when selling an investment can trigger different tax treatment. The difference between crypto income and capital gains illustrates why the name of an asset alone cannot determine which of Kiyosakis three categories applies.