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Comment by LamdbaMamba | Hacker News Reader

It's dangerous to call this a checking account alternative. It is not a checking account, it is a taxable investment account.

You're going to get users who sign up thinking this is just like a bank account, but with better returns. Then the market will drop 10% when their rent is due tomorrow. Bank rates are so low because the money is always there and insured. Anything without these features should not be called a checking account.

You call yourself Bogle fans, but passive index investing and instant cash access are fundamentally opposed from a time perspective. Finally, this is a tax nightmare. People will think they have huge gains in their account but get hit with a capital gains tax when they go to withdraw.

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You bring up some very good points, thank you. I agree we want to be careful to not call this a checking account, and I think we need to work on our wording here.

"passive index investing and instant cash access are fundamentally opposed": I agree, this is the case right now, but we want to change that, because there isn't any fundamental reason for this.

Yes, people will owe tax, but remember that only your gains are getting taxed. So if you get a tax bill, it's because you made money. That is still a net-positive. There are also a lot of things you can do to reduce (though not eliminate) the tax burdon, such as carefully selection what investments to sell, predicting money flow (e.g. not investing a paycheck if rent is due a day later), tax loss harvesting, etc.

> passive index investing and instant cash access are fundamentally opposed

They are opposed. Passive investing requires long waiting and holding, not lots of tx like a checking and cash access require.

Margin against the contents might be better, since you can keep the gains and not pay tax.

> e.g. not investing a paycheck if rent is due a day later

Yea, this is the problem! If you use this as a checking account, then you can't NOT invest it.

I think you are right if you assume that people generally keep their checking account balance at exactly what they need. If that's the case, then I agree, there isn't really a point to what we offer.

However, doing that is really hard, and requires you to micromanage your checking account. I personally (before using FC) had $10-20k in my checking account, because 1) I really want to make sure I don't miss a rent payment because I mess and 2) I don't want to micromanage. So, at least in my situation, some of the money is moving in and out and can't really be invested, but a decent chunk (probably >10k) just sits there. I imagine this is true for many people.

While I do wish the best of luck with your product, I feel like there's a difference in checking account needs for people with 10-20k of cash sitting around and people who live paycheck to paycheck. I think calling it anything close to a checkings account leads to "this isn't a checkings account and you're going to hurt people who think it is."

if i put in $50k, gained 10%, then payed rent with $2k. Is that $2k taxed as the profit? as someone not very knowledgable in the investment world, this seems pretty complicated, and also weird that i'd be taxed for every "faux checking" use if my portfolio is in the green

It depends on how much of your assets are invested in the market. And on how you're handling cost basis. And if you are carrying forward any previous losses. And how long you've held the asset. And... well, you get the idea.

well I'm not handling cost basis, Financial Choice is. and they're not sharing any of that AFAIK. which makes this confusing. Especially with the comparison here and on their home page, to a checking account.

Sounds like if the market is green I'm paying a hefty free for every single checking transaction

I think the tax filer max the ultimate decision on cost basis, not the financial institution.

If you put in $50K, and it gained 10% your account would now have $55K. If you withdraw $2K, you could be taxed on the 10% profit on that $2K, so $200. So if your tax rate is 25%, you'd pay $50 in taxes because of that 2K withdraw.

You are correct, but assuming the holding was < 1yr and STCG applied. If >1yr holding period, LTCG would apply. chances are it would only be a 15% tax rate in a LTCG applied tax. given current 2021 tax brackets.

Even this is incomplete, because we don't know the other tax situations, was there a tax loss carryover that would/could be applied, etc, etc, etc.

Taxes are complicated.

> Finally, this is a tax nightmare.

I can maybe get past the risk since I invest a lot anyways, and cap gains since interest bearing accounts are also taxed as ordinary income, but if every withdrawal causes a reportable sale, how is this not a IRS paperwork nightmare?

You can usually aggregate all your trades into a single line on your tax form.

"You can aggregate all short-term and all long-term covered transactions and report them as single-line entries directly on Schedule D. A covered transaction is one where your broker provided a 1099-B Form to the IRS that: 1) Show acquisition date and basis and 2) Don’t require any adjustments or codes"

https://www.hrblock.com/tax-center/income/investments/report...

Let me make sure I understand. My broker (in this case Financial Choice) will provide me with a 1099-B with a list of every time I bought or sold a security(this seems like it would be any time a used the checking account). I can then use the 1099 b to figure out what number goes into Schedule D.

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