My question is a bit nuanced, but I'll try to explain it completely while attempting to be brief(ish).
My work recently switched 401(k) administrators. Out prior 401(k) company had very limited options, all of which had expense ratios over .80% and I chose the least worst option.
Our new administrator has slightly better option available and I chose an S&P fund with the lowest available expense ratio of around .56%. I also opted into having a self-directed account within my 401(k), where I have the option of directing my contributions to a wider variety of funds.
So within my new 401(k), I currently have three accounts: (1) my employment "core account", which is the S&P fund I chose; (2) my self-directed cash account; and (3) my self-directed brokerage account.
My previous 401(k) balance (about $50k still in the .80% expense ration fund from my previous 401(k)) automatically rolled into my self-directed brokerage account. All contributions from my paychecks automatically go into my core account. I can purchase funds in my self-directed brokerage account with money in my cash account. I can also freely transfer funds from my core account to my cash account (although I need to keep at least a minimum of $2,500 in my core account).
Ideally, I'd like to get as much of my 401(k) funds into VTSAX as possible. I called up the provider and VTSAX is available in my self-directed brokerage account.
If I manually purchase VTSAX in my self-directed brokerage account with funds from my cash account, I get hit with a $25 purchase fee per purchase. However, the administrator will allow me to set up monthly automatic purchases of VTSAX in my self-directed brokerage account for free, without any fees associated with the automatic purchases. Annoyingly, I cannot set up an automatic transfer of funds from my core account to my cash account, and would have to do so manually.
The 401(k) provider can only set up the automatic self-directed brokerage account purchases to occur once or twice a month. I get paid every other week (26 pay periods a year with $692.30 withheld every pay period to max the 401(k)). Additionally, my company match gets added to my 401(k) once a year at the end of the year.
So my question is, what is the most efficient way to set up my automatic self-directed brokerage account VTSAX purchases to avoid manual purchase fees?
Here is the best I can come up with:
Step 1: In order to convert my prior 401(k) to VTSAX, I will have to sell the $50K my current .80% expense ratio (with a $25 transaction fee) which will transfer the $50K into my cash fund, and then purchase $50K of VTSAX (with another $25 transaction fee).
Step 2: Build up $2,500 in core account (currently have the two August contributions in the core account after our switch in the beginning of August).
Step 3: Once I have the minimum, wait two additional pay periods and then manually move $1,384.60 from core account to cash account (no fee to do so).
Step 4: Set up automatic purchases once a month for $1,384.60 from Cash into VTSAX in self-directed brokerage account (so in 10 of the 12 months, this will convert my full monthly 401(k) contributions into VTSAX within a month of the contributions).
Step 5: Manually move $1,384.60 from core account every month before automatic purchase date.
Step 6: At end of year when the year end employee match goes into the core account, take yearly match and two extra pay periods of 401(k) contributions and move to cash account.
Step 7: Manually purchase employee match + 2 pay periods of 401(k) worth of VTSAX in self-directed brokerage account and swallow the $25 fee to do so each year.
Step 8: Repeat until FIRE.
Is there a more efficient way to do this? Perhaps keeping an additional floating amount in my cash account while increasing the monthly automatic purchase amount? Limiting the employee match manual transfers to every other year or every three years to reduce the number of $25 fees I get (but keeping those funds in a .56% expense ratio longer versus moving them yearly to the .04% expense ratio fund)?
Thanks in advance and sorry about the long post.
