Comment by PopAlongKid | Hacker News Reader

Comment by PopAlongKid | Hacker News Reader

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>you could have a large tax bill when you file your taxes the following year. And if it’s too large, the IRS will even impose a penalty

It is actually called an "addition to tax", not a penalty, and in fact it is merely an interest charge, just like if you don't pay the full balance on your credit card each billing period (for tax, the "billing periods" are the (roughly) quarterly dates when estimated payments are due). If you can make more money elsewhere than the interest charge by the IRS (currently 7%) you are better off not making the payments during the year.

>Health Savings Accounts are the rare unicorn of triple tax advantage: money isn’t taxed (1) going in, (2) while it’s growing in the account, or (3) when it’s taken out.

I see this a lot and it is completely ridiculous. (1) and (3) are the same thing when it comes to your contributions-- there is no scenario where you would ever pay tax on money when you contribute it and also when you take it out. It is only a double tax advantage, not triple. (And the money only comes out tax free if you use it for a limited set of expenses namely health care).

1. There are penalties for underpayment of estimated taxes. And there are even interest charges on penalties. https://www.irs.gov/payments/underpayment-of-estimated-tax-b...

2. The triple tax advantage is not ridiculous. (1) and (3) are not the same thing. 401k for example is not taxed going in (you fund it with pre-tax dollars) but is taxed when taken out. When you withdraw money from your 401k in retirement, you owe taxes on the capital gains that have accrued in the account since you first put the money in. But if you take money out of HSAs for paying medical bills, there is no tax on the capital appreciation you have enjoyed in your HSA account.

1. The IRS web page is not authority. See the Internal revenue code §6654. Failure by individual to pay estimated income tax (a) Addition to the tax. Like I said, it is officially (by law) called an addition to tax, not a penalty.[0] Further, it is calculated as an interest charge. There is not any further interest charged on the interest. Yes, there are actual penalties such as Failure to File/Failure to Pay that do accrue interest, but this is not either of those.

[0]https://www.law.cornell.edu/uscode/text/26/6654

2. The HSA is just a holding account. You can either pay for health expenses such as insurance pre-tax each year, or you can put it in a HSA and delay the payment. In either case, you only get one tax deduction, not two. The ridiculous claim is to say for a $1K contribution to HSA, you get a $1K tax deduction, then you get another $1k tax deduction when you take it out - not true.

Don't #1 and #3 become true when you consider capital gains on an appreciated account? Genuine question, because how I'd thought of it, and your assertion shakes my confidence in my understanding.

You only get a single tax deduction, not a double deduction. If you put in $1K and also get $0.1K gains in your HSA, for example, you only get a total of $1.1K tax deduction. There is no "triple tax benefit".

The point is you never pay tax on that money. 1. Your contribution is pre-tax 2. Your growth is tax free 3. Your withdrawal is tax free as long as you have receipts for qualified expenses. I personally don’t have an HSA because it seems like a hassle and I don’t want a HDHP but I can see the appeal.

My point is that it is far from a "rare triple unicorn" or whatever overhyped language they use. You can put money in an IRA, get a tax deduction, and then not pay tax on the money and the earnings if you take it out via a QCD (qualified charitable distribution)), but no one calls this a rare triple unicorn. Also, many items paid through your employer, such as health insurance, flexible spending accounts, dependent care accounts also are tax free when contributed to and not taxed later if used for intended purposes. It is just a single tax benefit, not a "triple" tax benefit.

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