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Congress just approved 401(k) and IRA changes that affect workers across generations. Here are the key points to know

Saving for retirement just got a little bit easier. Congress approved big changes that can help 401(k) and IRA savers put a little more money away for their futures.

A series of new lawsknown collectively as Secure Act 2.0will change the way Americans save for retirement starting in 2023. They are part of the $1.7 trillion spending bill Congress passed late last week, and include upping the age of required minimum distributions (RMDs), allowing unused 529 funds (tax-advantaged savings plan for college expenses) to rollover to a retirement account penalty-free, and making it easier for workers with student loans to save for retirement.

With the passage of SECURE 2.0, millions more Americans now have a better chance at retirement success, says John James, head of the Vanguard Institutional Investor Group. This landmark legislation makes it easier for participants to save for their future.

The legislation includes dozens of changes to retirement saving, according to the text of the bill, summaries of the provisions, and insight from retirement and financial experts. Heres a rundown of some of the key 401(k), 403(b), and IRA tweaks.

Changes to RMDs

Currently, taxpayers are required to start taking RMDs from their retirement accounts at age 72. But starting in 2023, that age will increase to 73. In 2033, the age increases to 75.

That means if you turned 72 in 2022, you will need to take your first RMD by April 1, 2023; but if you turn 72 in 2023, you do not need to take your RMD until the following year, when you turn 73. That moves the deadline for your first withdrawal to April 1, 2025 (because your first RMD will be for the year 2024).

An additional RMD change: The penalty for missing RMDs is being reduced from 50% of the withdrawal amount to 25%. It falls to 10% if the RMD is taken by the end of the next year.

And starting in 2024, a surviving spouse who inherits a retirement account will be treated as the deceased account holder for RMD purposes. This means if the surviving spouse is younger than their deceased partner, they may be able to delay RMDs.

Finally, while there are currently no RMDs on Roth IRAs, there are required distributions for Roth 401(k)s. The Secure Act 2.0 does away with these for account holders who are still alive.

Increased catch-up contributions

Another boon for older workers: They will be allowed to save even more in retirement accounts.

Currently, those over 50 can invest an additional $7,500 to their 401(k) or 403(b)s in what is known as a catch-up contribution. That amount will increase to $10,000 starting in 2025 for those ages 60 to 63.

Additionally, starting in 2024, the IRA catch-up limit will be increased for inflation each year. Currently, its a flat $1,000 extra per year.

Catch-up Roth contributions

Under current law, catch-up contributions to qualified retirement plans can be made on a pre-tax or Roth (post-tax) basis. The legislation changes that for higher-earning workers: For those making at least $145,000, all catch-up contributions are subject to Roth tax treatment, beginning in 2024.

Congress wants more retirement funds going into Roth-type accounts because they raise tax revenue, since there are no tax deductions for Roth contributions, says Ed Slott, a CPA and an IRA specialist. But this is great for people since Roth distributions in retirement will be tax-free.

Roth 401(k) matching

Under current law, if an employer offers a retirement match, it needs to be distributed into a traditional 401(k) on a pre-tax basis, even if the employee has a Roth 401(k). The new legislation tweaks this so that employers can offer Roth matching contributions. Like other Roth contributions, employees will pay taxes on their Roth match up front and be able to take it out later tax-free.

401(k) savings accounts

Employers will now be able to automatically enroll their employees in savings accounts linked to their 401(k)s. Studies have shown that automatic enrollment increases participation ratesand total amounts ofsavings. They can also match the emergency savings, though the match would be in the form of a retirement account contribution.

Employees earning under $150,000 starting in 2023 qualify for these accounts, and can save up to $2,500. The savings works like a Roth contribution (or contribution to a regular savings account): Employees contribute money theyve already paid tax on, and can withdraw it tax-free. If an employee meets that $2,500 cap, any additional contributions will be diverted to a Roth account.

The SECURE Act focuses more on emergency savings than any prior legislation weve seen, says Jeff Kobs, head of John Hancock Retirements Business Consulting Group. The past few years have really highlighted that providing a way to save for emergencies can prevent individuals from having to tap into their long-term retirement assets to pay for short-term needs.

Emergency 401(k) and IRA withdrawals

The legislation will make it easier for workers to withdraw funds from their retirement accounts penalty-free in the case of personal or family emergencies such as a terminal illness or natural disaster.

One emergency distribution up to $1,000 will be permitted each year starting in 2024. If the taxpayer does not repay that $1,000 in three years, they cannot take another distribution during that time.

While these are all critical issues, withdrawing early from a retirement account should be a last resort, and now the Tax Code has more penalty-free access than ever, says Slott. Its a tough call. Hopefully people will only use these funds for true emergencies, plus they will still owe the tax on the distribution.

Additionally, starting in 2024 domestic abuse survivors will be allowed to take penalty-free withdrawals of the lesser of $10,000 or 50% of their retirement account. They can repay that within three years, and if they do they will be refunded the income tax they paid on the withdrawal.

401(k) automatic enrollment

Speaking of automatic enrollment, the legislation requires employers starting new retirement plans in 2025 or after to automatically enroll their employees in a 401(k) and 403(b) plan. The automatic enrollment will start at 3% of the employees paycheck and cannot exceed 10%. Each year, the contribution will automatically increase by 1%.

Student loan payment match

Workers who have student debt often forego contributing to their retirement accounts to afford their monthly loan payment. And if their employer offers a 401(k) match, that means they miss out on that moneyeffectively taking a pay cut and reducing the time they are investing for retirement, sometimes for a decade or more.

The Secure Act 2.0 allows employers to make matching contributions into a retirement account for employees who are making student loan payments, even if they arent contributing to their 401(k)s. The match would mirror a retirement match, allowing those borrowers to start saving for retirement while paying down their debt.

This also applies to those with 403(b)s, 457(b)s, and SIMPLE IRAs.

Rollover 529 funds

If a family has leftover funds in a 529 account they are not using for educational purposes, they are assessed a penalty to withdraw those funds. Starting in 2024, the Secure Act 2.0 allows beneficiaries of 529 accounts to rollover up to $35,000 (in a lifetime) into a Roth IRA. The 529 needs to have been open for at least 15 years for a beneficiary to do this.

The rollover amount is subject to the annual contribution limit for Roth IRAs, so some people may need to plan to move their funds over multiple years.

While there are not millions of people over-funding 529 plans, this does give assurance to parents and grandparents funding a 529 that the money can be repositioned for their children or grandchildren to retirement savings if their 529 beneficiary goes to a cheaper school, gets a scholarship, or does not attend college, says Jamie Hopkins, managing partner of wealth solutions at the Carson Group.

National 401(k) registry

Finally, the bill will create a national lost-and-found registry for 401(k)s. Currently, states operate their own versions, leading to confusion for many workers.

It can be almost impossible to find your funds if lost or forgotten because the money might sit not in the state you live, or your employer was located, but where the plan provider was located, says Hopkins. A national directory will be beneficial for consumers.

The database will be searchable online, allowing workers to search for their plan administrator.

What is an ex-dividend date?

There are two primary ways to make money through the stock market: by selling the stock for more than you paidalso known as capital gainsand by collecting a dividend. A dividend is a payment made by a company to its shareholders, most often out of the profits it generates.

For investors, dividends can be an important part of your investing strategy whether youre reinvesting them back into a stock or using the dividends as an additional income stream. Dividends are kind of like a bonus to investors for owning the stock. They are paid regularly, usually quarterly, so investors are consistently compensated for owning the stock, even if the stock price falls, says Kevan Melchiorre, certified financial planner and co-founder of Tenet Wealth Partners. In order to receive dividend payments there is a key date you must know, the ex-dividend date.

What is the ex-dividend date?

The ex-dividend date determines if a shareholder will receive an upcoming dividend payment. Shareholders who own the stock before the ex-dividend date will be paid the next dividend, says Sabina Smailhodzic Lewis, certified financial planner and founder and financial Planner at Avant-Garde Wealth. This is because dividend payments are sent out based on who owns the shares on a specific date, known as the record date, which is typically one business day after the ex-dividend date.

Its also important to note that dividend payments are generally not guaranteed, meaning that a company may choose to suspend or reduce its dividend payments at any time. While some companies have built a reputation for paying dividends for decades, others have had to suspend or cut dividends in times of economic uncertainty. For example, Exxon Mobil (XOM) has paid a dividend for more than 100 consecutive years. General Motors (GM) suspended its dividend payments in 2020 because of the coronavirus pandemic and didnt resume until August 2022.

How ex-dividend dates work

When a company announces that it will pay out a dividend, it will also announce how much will be paid to shareholders, and the date that investors must own shares to receive the dividend payment, which is known as the record date. The ex-dividend date serves as a cutoff date after which new investors to the company must wait for the next dividend.

Existing shareholders will receive a notification from the company, while potential investors can find the information online, on popular investor information websites, adds Smailhodzic Lewis.

Declaration date: On this day, the company will usually issue a press release announcing the dividend amount and important dates that shareholders should be aware of.
Ex-dividend date: This is the day after which dividend payments will no longer be paid to investors who purchase a stock.
Record date: The dividend record date is the date which one must own shares in order to be eligible for dividend payments.
Payment date: On this day, dividend payments are made to shareholders who held their shares prior to the ex dividend date.
Settlement date: The settlement date is the day the shareholder officially owns the stock if you purchased shares, or the date you receive payment if you sold shares. This is typically two business days after a buy or sell order is executed.

Example

On February 1, Company A declares a dividend that will be paid to its shareholders on March 30; this is the payment date. Company A also says that shareholders who own the stock on or before February 10 will be entitled to the dividend; this is the record date. The stock will trade ex-dividend one day before the record date, which in this example would be February 9. In this case anyone who buys the stock before the ex-dividend date of February 9 will receive the March 30 dividend. Those who purchase shares on the ex-dividend date or after will have to wait until the next dividend is declared.

The takeaway

Understanding the ex-dividend date, dividend record date, and dividend payment date are important for any investor who wants to take advantage of dividend payouts as part of their strategy. Staying mindful of the ex-dividend date whenever trading stock can be the difference between capturing the upcoming dividend income or not, Melchiorre says.

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The Deep South's infrastructure is cracking under the bomb cyclone as burst pipes leak millions of gallons of water

Days of freezing temperatures in Deep South areas that usually freeze for only hours are threatening dozens of water systems as burst pipes leak millions of gallons of water.

The problems were happening Monday in large, troubled water systems like Jackson, Mississippi, where residents were required over Christmas to boil water months after most lost service because of a cascade of problems from years of poor maintenance.

They also are happening in Shreveport, Louisiana, where some residents had no water Monday. In Selma, Alabama, the mayor declared a state of emergency because they city worried it would run out of water. Workers at a food bank in Greenville, South Carolina, opened their doors to a rush of water and were trying to save $1 million in food. Police departments around Atlanta said their 911 systems were being overwhelmed by unnecessary emergency calls about broken pipes.

Dozens of water systems either had boil advisories in place because of low pressure or warned of bigger catastrophes if leaks from broken pipes werent found and water shut off.

The culprit was temperatures that dropped below freezing Thursday or early Friday and have spent only a few hours if any above 32 degrees (0 degrees Celsius) since then.

Water expands when it freezes, bursting pipes that arent protected. Then when the temperature rises, those broken pipes start leaking hundreds or thousands of gallons of water.

And over a holiday weekend, when many businesses are closed, those leaks can go undetected for days, Charleston, South Carolina, water system spokesman Mike Saia told WCSC-TV.

Charleston was on the verge of a boil water requirement for its hundreds of thousands of customers that could close restaurants and other businesses.

The system puts out about 50 million gallons of water during a typical winter day. Over the holiday weekend, its output was about 100 million gallons. More than 400 customers reported burst pipes, so between unreported leaks, closed businesses and empty vacation homes, the system figures thousands of leaky pipes are gushing water.

Its death by a thousand cuts, Saia told the TV station.

The situation in Jackson was not as dire as August, when many of the capitals 150,000 people lost running water after flooding exacerbated longstanding problems in one of the capital citys two water treatment plants. Residents had to wait in lines for water to drink, cook, bathe and flush toilets.

But there were people without water pressure and the city set up an emergency water distribution site on Christmas.

We continue to struggle to return pressure to the water system. We are producing significant amounts of water and pushing that into the system but the pressure is not increasing despite those efforts at the plants. The issue has to be significant leaks in the system that we have yet to identify, Jackson officials said in a statement.

In Selma, Mayor James Perkins Jr. issued an emergency order Christmas Day asking owners to go to their businesses and check for leaks before the city ran out of water.

Crews in the city of 18,000 were able to find and fix enough leaks to equalize the amount of water coming into and out of the system, Perkins said Monday in a statement. But there was a major leak that hasnt yet been found and two more nights that are forecast to be below freezing, the mayor said.

Broken pipes were also causing problems at individual buildings. A massive leak was reported at the Alabama Statehouse in Montgomery on Christmas Eve, according to WFSA-TV.

At the Harvest Hope Food Bank in Greenville, South Carolina, employees opened the building Monday morning and several inches of water rushed out. Broken pipes were spraying water and workers turned away dozens of needy people, the food bank said.

The water cut power to the food banks freezers and refrigerators, and workers faced the double challenge of getting power restored before the food spoiled and keeping water out of the area. Up to $1 million of food could be destroyed, the food bank said.

The forecast did provide good news. Mondays highs across the Deep South were expected to be at least in the 40s and the freezing temperatures at night shouldnt last as long until a much warmup arrives later this week.

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At least 34 Americans die in deep freeze as massive winter storm stretches from Great Lakes to Rio Grande

Millions of people hunkered down against a deep freeze Sunday to ride out the winter storm that has killed at least 34 people across the United States and is expected to claim more lives after trapping some residents inside houses with heaping snow drifts and knocking out power to tens of thousands of homes and businesses.

The scope of the storm has been nearly unprecedented, stretching from the Great Lakes near Canada to the Rio Grande along the border with Mexico. About 60% of the U.S. population faced some sort of winter weather advisory or warning, and temperatures plummeted drastically below normal from east of the Rocky Mountains to the Appalachians, the National Weather Service said.

Travelers weather woes are likely to continue, with hundreds of flight cancellations already and more expected after a bomb cyclone when atmospheric pressure drops very quickly in a strong storm developed near the Great Lakes, stirring up blizzard conditions, including heavy winds and snow. Some 1,707 domestic and international flights were canceled on Sunday as of about 2 p.m. EDT, according to the tracking site FlightAware.

The storm unleashed its full fury on Buffalo, with hurricane-force winds and snow causing whiteout conditions, paralyzing emergency response efforts. New York Gov. Kathy Hochul said almost every fire truck in the city was stranded Saturday and implored people Sunday to respect an ongoing driving ban in the region. Officials said the airport would be shut through Tuesday morning. The National Weather Service said the snow total at the Buffalo Niagara International Airport stood at 43 inches (109 centimeters) at 7 a.m. Sunday.

Daylight revealed cars nearly covered by 6-foot snowdrifts and thousands of houses, some adorned in unlit holiday displays, dark from a lack of power. With snow swirling down untouched and impassable streets, forecasters warned that an additional 1 to 2 feet of snow was possible in some areas through early Monday morning amid wind gusts of 40 mph. Police said Sunday evening that there were two isolated instances of looting during the storm.

Two people died in their suburban Cheektowaga, New York, homes Friday when emergency crews could not reach them in time to treat their medical conditions. County Executive Mark Poloncarz 10 more people died in Erie County during the storm, including six in Buffalo, and warned there may be more dead.

Some were found in cars, some were found on the street in snowbanks, said Poloncarz. We know there are people who have been stuck in cars for more than 2 days.

Freezing conditions and day-old power outages had Buffalonians scrambling to get to anywhere that had heat amid what Hochul called the longest sustained blizzard conditions ever in the city. But with streets under a thick blanket of white, that wasnt an option for people like Jeremy Manahan, who charged his phone in his parked car after almost 29 hours without electricity.

Theres one warming shelter, but that would be too far for me to get to. I cant drive, obviously, because Im stuck, Manahan said. And you cant be outside for more than 10 minutes without getting frostbit.

Ditjak Ilunga of Gaithersburg, Maryland, was on his way to visit relatives in Hamilton, Ontario, for Christmas with his daughters Friday when their SUV was trapped in Buffalo. Unable to get help, they spent hours with the engine running, buffeted by wind and nearly buried in snow.

By 4 a.m. Saturday, their fuel nearly gone, Ilunga made a desperate choice to risk the howling storm to reach a nearby shelter. He carried 6-year-old Destiny on his back while 16-year-old Cindy clutched their Pomeranian puppy, following his footprints through drifts.

If I stay in this car Im going to die here with my kids, Ilunga recalled thinking. He cried when the family walked through the shelter doors. Its something I will never forget in my life.

The storm knocked out power in communities from Maine to Seattle. But heat and lights were steadily being restored across the U.S. According to poweroutage.us, less than 200,000 customers were without power Sunday at 3 p.m. EDT down from a peak of 1.7 million.

Concerns about rolling blackouts across eastern states subsided Sunday after PJM Interconnection said its utilities could meet the days peak electricity demand. The mid-Atlantic grid operator had called for its 65 million consumers to conserve energy amid the freeze Saturday.

In North Carolina, less than 6,500 customers had no power down from a peak of 485,000. Across New England, power has been restored to tens of thousands with just under 83,000 people, mostly in Maine, still without it. In New York, about 34,000 households were still without power Sunday, including 26,000 in Erie County, where utility crews and hundreds of National Guard troops battled high winds and struggled with getting stuck in the snow.

Storm-related deaths were reported in recent days all over the country: 12 in Erie County, New York, ranging in age from 26 to 93 years old, and another in Niagara County where a 27-year-old man was overcome by carbon monoxide after snow blocked his furnace; 10 in Ohio, including an electrocuted utility worker and those killed in multiple car crashes; six motorists killed in crashes in Missouri, Kansas and Kentucky; a Vermont woman struck by a falling branch; an apparently homeless man found amid Colorados subzero temperatures; and a woman who fell through Wisconsin river ice.

In Jackson, Mississippi, city officials on Christmas Day announced that residents must now boil their drinking water due to water lines bursting in the frigid temperatures

In Buffalo, William Kless was up at 3 a.m. Sunday. He called his three children at their mothers house to wish them Merry Christmas and then headed off on his snowmobile for a second day spent shuttling people from stuck cars and frigid homes to a church operating as a warming shelter.

Through heavy, wind-driven snow, he brought about 15 people to the church in Buffalo on Saturday, he said, including a family of five transported one-by-one. He also got a man in need of dialysis, who had spent 17 hours stranded in his car, back home, where he could receive treatment.

I just felt like I had to, Kless said.

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Bleiberg reported from Dallas. Associated Press journalist Mike Schneider in Orlando, Florida; Stefanie Dazio in Los Angeles; Jonathan Mattise in Charleston, West Virginia; Ron Todt in Philadelphia; John Raby in Charleston, West Virginia; Marc Levy in Harrisburg, Pennsylvania; Jeff Martin in Atlanta; and Wilson Ring in Stowe, Vermont, contributed to this report.

Newly elected Republican congressman admits to lying about graduating from college, working on Wall Street, being Jewish, and more

Rep.-elect George Santos, R-N.Y., admitted Monday that he lied about his job experience and college education during his successful campaign for a seat in the U.S. House.

In an interview with the New York Post, Santos said: My sins here are embellishing my resume. Im sorry.

He also told the newspaper: I campaigned talking about the peoples concerns, not my resume and added, I intend to deliver on the promises I made during the campaign.

The New York Times raised questions last week about the life story that Santos, 34, had presented during his campaign.

The Queens resident had said he had obtained a degree from Baruch College in New York, but the school said that couldnt be confirmed.

On Monday, Santos acknowledged: I didnt graduate from any institution of higher learning. Im embarrassed and sorry for having embellished my resume.

He added: I own up to that. We do stupid things in life.

Santos had also said he had worked for Citigroup and Goldman Sachs, but neither company could find any records verifying that.

Santos told the Post he had never worked directly for either financial firm, saying he had used a poor choice of words.

He told the Post that Link Bridge, an investment company where he was a vice president, did business with both.

Another news outlet, the Jewish American site The Forward, had questioned a claim on Santos campaign website that his grandparents fled Jewish persecution in Ukraine, settled in Belgium, and again fled persecution during WWII.

I never claimed to be Jewish, Santos told the Post. I am Catholic. Because I learned my maternal family had a Jewish background I said I was Jew-ish.

Santos first ran for Congress in 2020 and lost. He ran again in 2022 and won in the district that includes some Long Island suburbs and a small part of Queens.

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At least 28 western New Yorkers die in worst storm of a lifetime: 'We even watched the Buffalo Bills game on our phone'

Storm-battered Buffalo braced Tuesday for fresh snow while still counting fatalities and striving to recover from the deadliest storm in western New York in at least two generations.

Mayor Byron Browns office announced seven additional storm-related deaths Tuesday, bringing Buffalos total to 27, along with at least seven suburban fatalities. The toll surpasses that of the historic Blizzard of 1977, blamed for killing as many as 29 people in a region known for harsh winter weather.

The National Weather Service predicted that as much as 2 inches (2.5 to 5 centimeters) more snow could fall Tuesday in Erie County, which includes Buffalo. It is the second-largest city in New York, with about 275,000 residents.

While Tuesdays forecast was nothing like the massive storm that dropped over 4 feet of snow in some places starting Friday, any additional snowfall that Buffalo may continue to have today is going to be impactful, said lead forecaster Bob Oravec.

The biggest impact is going to be how it hinders the removal of the previous snowfall, he said.

The rest of the United States also was reeling from the ferocious winter storm, with at least an additional two dozen deaths reported in other parts of the country, and power outages in communities from Maine to Washington state.

On the Rosebud Sioux Tribes reservation in South Dakota, there were plans to use snowmobiles Tuesday to reach residents after food boxes were delivered by helicopter and trucks over the weekend, the tribe said.

In Buffalo, the dead were found in cars, homes and snowbanks. Some died while shoveling snow, others when emergency crews could not respond in time to medical crises. County Executive Mark Poloncarz called the blizzard the worst storm probably in our lifetime, even for an area known for heavy snow.

The winter blast stranded some people in cars for days, shuttered the citys airport and left some residents shivering without heat.

Trisha LoGrasso and her family were still huddled around a space heater in a makeshift hut in her Buffalo living room Monday. She was without heat because of a gas leak, the temperature inside the home was 42 degrees (5.5 Celsius), and burst pipes left her with no running water.

Ive lived here my whole life, and this is the worst storm Ive ever seen, said LoGrasso, 48.

President Joe Biden offered federal assistance Monday to New York, while Gov. Kathy Hochul toured the aftermath in Buffalo, her hometown, and called the blizzard one for the ages. Almost every fire truck in the city became stranded Saturday, she said.

Hochul, a Democrat, noted the storm came a little over a month after the region was inundated with another historic snowfall. Between the two storms, snowfall totals are not far off from the 95.4 inches (242 centimeters) the area normally sees in an entire winter season.

The National Weather Service said the snow total at the Buffalo Niagara International Airport stood at 49.2 inches (1.25 meters) at 10 a.m. Monday. Officials say the airport will be shut through Wednesday morning.

Nearly 2,900 domestic and international U.S. flights were canceled Tuesday as of about 10 a.m. Eastern time, according to the tracking site FlightAware.

The U.S. Department of Transportation said it will look into flight cancellations by Southwest Airlines that left travelers stranded at airports across the country amid the winter storm. Many airlines were forced to cancel flights, but Southwest was by far the leader.

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Associated Press journalist Julie Walker in New York contributed to this report.

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Stock splits: What you need to know

As an investor, the assets in your portfolio may undergo changes over time. They may increase in value, or decrease in value, and sometimes they may be impacted by whats known as a stock split.

A stock split can have various ramifications depending on the type of split that takes place. In some cases, you may end up with more shares and in other cases, you may end up with fewer. But importantly, the value of your holdings does not change.

What is a stock split?

A stock split is when a company breaks an existing share into multiple shares. In other words, one share of a particular companys stock in your portfolio may be broken into two shares, three shares, or even more, as a result of a stock split.

Publicly traded companies periodically choose to split their stocks when share prices climb too high. Taking this step reduces the unit price of each stock.

For example, if a companys share price is $100, the board might decide that by splitting the shares, they can make their stock more accessible to more investors. The board could authorize a 2-for-1 stock split so that holders of one original share end up with two shares after the split, says Andrew Crowell, financial advisor and vice chairman of wealth management at D.A. Davison. If the share price was $100 before the split, the post-split shares would be $50 each.

Stock splits allow a company to increase the liquidity of its sharesor how often the shares are traded on a stock exchange. This is also referred to as volume, which is the total number of shares traded within a particular time frame.

A low-volume stock is not traded very frequently, says Jon Klaff, general manager of Magnif. The price of a stock can impact its volume, with higher prices making it more difficult to buy and sell. Most people dont want to be stuck with a stock they cant sell.

The importance of stock split proportions

The exact proportion of the stock split plays a significant role in the resulting price of the individual shares. Stock splits often happen on a 2-for-1 basis, which means if you had one share, you now have two, as Crowell mentioned. But depending on how much the company wants to reduce its share price, there may also be 3-for-1 splits, 4-for-1 splits, and so on.

In fact, in some cases, the proportion of the split is even higher, such as 20-for-1. That was the case with Googles parent company Alphabet, which split its stocks 20-for-1 in July, making shares significantly more affordable to retail investors. As a result of the split, Alphabets Class A stock prices dropped from about $2,255 per share to about $112 each, making purchases far more palatable to those looking to buy whole shares.

What are reverse stock splits?

Not all stock splits are designed to decrease share prices. In some cases, the split may be aimed at just the oppositeincreasing the price per share. This is known as a reverse stock split.

A company will typically do this if a stock price is in the low single digitssuch as $3 per share, or $2 per share, says Dave Heger, senior equity analyst at Edward Jones. If a stock trades below a certain cutoff point, you run the risk of getting delisted, and so the company will do a reverse split.

In a reverse split scenario, if a stock is currently $3 a share and the company engages in a 10-to-1 split, the price increases to $30 per share, and the total number of shares in your portfolio for that company decreases.

How does a stock split impact your portfolio?

When a stock splits, the overall dollar value of the holdings in your portfolio for that stock generally does not change. You simply have moreor lessstocks than you did prior to the split. But because the price of each stock has also been altered by the split, the value ends up being identical.

For example, one share worth $100 is worth the same as two shares at $50, so it ends up being a wash, says Heger.

Despite this fact, theres often a perception among investors that stock splits do indeed add valueat least over the long term. This is because when a stock becomes more affordable, it may attract more investors, which may ultimately drive up the price.

The split may trigger renewed investor interest, potentially attracting more retail shareholders into the stock who might view it as more attainable to buy, continues Heger.

Pros and cons of stock splits

While a stock split may not change the overall value of your holdings, there are some pros and cons to these types of events.

Pro: Makes shares more affordable. Stock splits can be good news for those looking to invest in stocks that have historically been higher priced. As an example, Apples stock has split five times since its initial IPO in 1980. If those splits had not happened, Apple shares might have remained out of reach for many investors. At its height, Apple shares were over $700 each. Now theyre about $136 per share.
Pro: May trigger renewed investor interest. When stocks are more affordable, it may attract increased retail interest, which can drive prices upward over the long run.
Con: Could trigger volatility. When there are changes in the price of a particular stock, theres a risk of triggering volatility as investors move in or out of the stock.
Con: Does not add any new value: At least in the short term, the total value of your assets for the stock in question remains the same. However, if the split does indeed generate increased interest among retail investors, the price per share could increase significantly over the long term.

The takeaway

While theres often a perception that stock splits add value to your portfolio, thats not exactly the case. In the short-term at least, its a wash. The overall value of the stocks that split remain the same. However, if theres renewed investor interest in the stock as a result of the split, your holdings may become more valuable over the long term as the price ticks upward.