Personal Finance

DOGE layoffs may ‘overwhelm’ unemployment system for federal workers

Published

2 days ago

March 7, 2025

Business Finance News

President Donald Trump listens during a Cabinet meeting at the White House on Feb. 26, 2025.

Andrew Harnik | Getty Images News | Getty Images

The Trump administration’s purge of federal staff may flood an unemployment benefits system ill-equipped to handle the deluge, triggering delays in aid for jobless workers, according to a new report.

The terminations of federal workers by the Trump administration’s so-called Department of Government Efficiency — headed up by billionaire entrepreneur Elon Musk — may ultimately stretch into the hundreds of thousands. That would amount to the largest mass layoff in U.S. history.

The scale of cuts would likely “overwhelm” the Unemployment Compensation for Federal Employees (UCFE) program, the “rarely utilized and creaky” system most federal workers use to claim unemployment benefits, according to a report by The Century Foundation, a progressive think tank.

The result would likely be longer time frames to collect financial aid that’s meant to help workers stay afloat and prevent them from depleting savings as they look for new jobs, said Andrew Stettner, the group’s director of economy and jobs, who co-authored the analysis.

“We’re already hearing it’s taking a long time for people to get their benefits,” said Stettner, former director of unemployment insurance modernization at the U.S. Labor Department during the Biden administration. “And it will probably only get worse.”

The Department of Labor oversees the UCFE program, which is administered by state unemployment agencies.

Elon Musk holds a chainsaw reading “Long live freedom, damn it” during the annual Conservative Political Action Conference on Feb. 20, 2025.

Saul Loeb | Afp | Getty Images

More than 62,000 federal workers across 17 agencies lost their jobs in February alone, Challenger, Gray & Christmas, an outplacement firm, reported Thursday. By comparison, there were 151 cuts in January and February last year, it said.

Employers have announced almost 222,000 job cuts so far in 2025, the highest year-to-date total since 2009, Challenger, Gray & Christmas said.

“The sudden surge of claims due to federal layoffs has some worrisome similarities to the pandemic, despite its much smaller scale,” according to the Century report.

States will have to process a “drastically greater” volume of claims for the UCFE program, it said.

The Labor Department didn’t return a request from CNBC for comment.

Federal unemployment program more ‘manual’

The UCFE program differs from the unemployment insurance system for private-sector workers — and has unique challenges.

The private-sector UI system is more automated, while that for federal workers requires more manual inputs that can significantly slow the process during times of high volume, Stettner said.

Specifically, private companies pass an employee’s earnings and employment records on a quarterly basis to the appropriate jurisdiction, Stettner said. (That jurisdiction may be a state, territory or the District of Columbia, depending on where the employee worked.)

Mass government layoffs: Impact on the labor force and the economy

These employment records are necessary to determine factors like eligibility and weekly payments if a worker claims jobless benefits.

However, the UCFE program isn’t as streamlined. After a worker applies, the state fills out a form and submits a request to the federal agency at which an employee worked, which then verifies the claim’s accuracy, Stettner said.

The federal system is generally “such a small program, it basically works by hand,” he said.

About 7,400 people were collecting federal unemployment benefits as of Feb. 15, up roughly 12% from the same time last year, according to Labor Department data issued Thursday. The number could easily climb to 10 or 20 times that amount, more than they system has ever fielded, Stettner said.

Additionally, the federal government may try to contest claims in certain situations, which could further slow the process, he added. For example, many probationary workers received termination letters saying they’d been fired for cause; while that characterization doesn’t generally prevent workers from getting benefits, the government may use it as a reason to dispute a benefits application, Stettner said.

Federal workers may find themselves in a tough financial situation if they can’t access benefits quickly.

That’s because it may be difficult for workers to find new jobs, especially in regional labor markets most impacted by mass layoffs.

“Unfortunately, this labor market will not be conducive to a quick rebound — hiring rates are relatively low and uncertainty across the economy is likely to make businesses cautious about labor investments,” Elizabeth Renter, a senior economist at NerdWallet, wrote Thursday.

Road blocks for the Trump administration, DOGE

Even so, it’s unclear how many cuts will ultimately happen — or stick.

The Trump administration has hit recent road blocks in its attempts to cull federal jobs. For example, a federal judge in San Francisco last week said federal mass layoffs were likely illegal and directed the U.S. Office of Personnel Management to rescind directives ordering some agencies to fire probationary workers.

Assistant U.S. Attorney Kelsey Helland argued for the government that OPM had asked, not ordered, agencies to lay off probationary workers.

“It appears the administration wants to cut even more workers, but an order to fire the roughly 200,000 probationary employees was blocked by a federal judge,” said Challenger, Gray & Christmas. “It remains to be seen how many more workers will lose their Federal Government roles.”

Additionally, the Merit Systems Protection Board, which handles federal worker disputes, temporarily reinstated about 6,000 workers at the U.S. Department of Agriculture in their old positions effective Wednesday.

Personal Finance

How to save for retirement in a single-income household

Published

20 hours ago

March 8, 2025

Business Finance News

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If you’re married and in a single-income household, a lesser-known retirement strategy could boost your nest egg — and there’s still time to use it for 2024.

A spousal individual retirement account is a separate Roth or traditional IRA for the non-working spouse. With this strategy, two IRAs can be maxed out annually with enough income from the working spouse. The deadline for 2024 contributions is April 15.

“Spousal IRAs are a game changer for married couples looking to build retirement savings and manage their lifetime tax burden,” said certified financial planner Jim Davis, partner at Aspen Wealth Management in Fort Worth, Texas.

For 2024, the IRA contribution limit is $7,000, plus an extra $1,000 catch-up contribution for investors age 50 and older. The caps are the same for 2025.

That means an older married couple with sufficient earned income could save up to $8,000 per IRA for 2024 before the April 15 tax deadline. They’ll have until next year’s tax due date for 2025 IRA contributions.

“For many, it’s a simple yet powerful step toward achieving long-term goals,” Davis said.

To qualify, you must file taxes jointly and your combined IRA contributions can’t exceed “taxable compensation” reported on your tax return, according to the IRS. The strategy could also work if one spouse is unemployed without enough 2024 earnings to contribute to an IRA on their own.

Roth IRAs are funded with after-tax dollars and offer future tax-free growth, but there’s an income limit. Traditional IRAs could provide an upfront tax break, depending on your income and workplace retirement plan participation.

‘Leveling the playing field’

Another perk of spousal IRAs is the ability to create or boost retirement savings for spouses who don’t earn an income, said Michelle Petrowski, a CFP and founder of Phoenix-based financial firm Being in Abundance.

“This helps accrue retirement savings for the family CFO who may not be employed outside the home, or is currently underemployed,” she said.

In a divorce, it’s often easier to split retirement accounts when the non-earning spouse has assets in their name, noted Petrowski, who is also a certified divorce financial analyst.

“This is a great way to acknowledge their unpaid economic contribution to the household,” she said. “It really helps with leveling the playing field in these conversations.”

Personal Finance

Million-dollar wage earners have stopped paying into Social Security for 2025

Published

20 hours ago

March 8, 2025

Business Finance News

A video protest sign on a truck paid for by the Patriotic Millionaires drives past a mansion owned by Amazon founder Jeff Bezos as part of a federal tax filing day protest to demand he pay his fair share of taxes, in Washington, May 17, 2021.

Jonathan Ernst | Reuters

Most workers can expect to see Social Security payroll taxes taken from their paychecks throughout the year.

But high earners with $1 million in gross annual wage income have already stopped paying into the program as of March 6, according to the Center for Economic and Policy Research.

In 2025, workers are subject to payroll taxes on up to $176,100 in earnings. Workers pay a 6.2% Social Security payroll tax rate, which is matched by their employers, for a total of 12.4%.

Once high earners hit that $176,100 cap, they no longer contribute to the program for the rest of the year.

“Elon Musk has already reached that cap of $176,100 within the first few minutes of 2025 just on gross annual wage income,” said Emma Curchin, research assistant at the Center for Economic and Policy Research.

That does not include the investment income he earns, which is not subject to Social Security payroll taxes, she said.

Approximately 6% of workers have earnings over the taxable maximum, according to the Social Security Administration.

Ultimately, higher earners who contribute to the program up to the highest taxable earnings each year for most of their careers stand to receive the maximum retirement benefit.

In 2025, the maximum Social Security benefit for a worker retiring at full retirement age is $4,018 per month.

Meanwhile, the average monthly benefit for retired workers is $1,976 per month in 2025.

Congress could mull eliminating payroll tax cap

As Social Security’s trust funds face a looming insolvency date, some proposals have suggested eliminating or lifting the cap on earnings subject to the Social Security payroll tax.

Last year, Social Security’s trustees projected the fund that the program relies on to pay retirement benefits may last until 2033. At that time, 79% of scheduled benefits will be payable.

To prevent those benefit shortfalls, Congress may consider a variety of tax increases or benefit cuts.

Maximizing your Social Security benefits

One recent survey found the most popular policy option would be to eliminate the payroll tax cap for earnings of more than $400,000, according to the National Academy of Social Insurance, AARP, the National Institute on Retirement Security and the U.S. Chamber of Commerce. The change would not provide additional benefits for higher earners who are affected.

The survey also found Americans would be open to higher taxes to ensure benefits either stay the same or increase.

“They’re willing to pay more, not to get extra benefits for themselves, but just to close the financing gap to prevent indiscriminate across the board benefit cuts,” Tyler Bond, research director for the National Institute on Retirement Security, previously told CNBC.com.

Another change survey respondents favored is reducing benefits for individuals with higher retirement incomes excluding Social Security. That would apply to individual retirees with $60,000 or more aside from Social Security per year and married couples with $120,000 or more per year.

“By scrapping the cap, the Social Security trust fund could be much more healthy and secure,” Curchin said.

But it’s not enough. To restore the program’s solvency, research has shown a combination of changes would be required.

Personal Finance

Many investors aren’t planning for traditional IRA taxes in retirement

Published

21 hours ago

March 8, 2025

Business Finance News

Guido Mieth | Moment | Getty Images

‘Your IRA is an IOU to the IRS’

Traditional IRAs are the oldest and most common type of IRA, owned by 31.3% of U.S. households as of mid-2023, according to research from the Investment Company Institute.

Nearly two-thirds of families with traditional IRAs have accounts with retirement plan rollovers, and 43% made contributions on top of rolled over funds, ICI found.

These accounts continue to grow, and many retirees don’t have a plan to withdraw the money, experts say.

“Your IRA is an IOU to the IRS,” said Slott, who is also a certified public accountant.

Starting at age 73, pre-tax retirement accounts are generally subject to required minimum distributions, or RMDs, based on your previous year-end balance and a life expectancy factor.

By comparison, Roth accounts, which are funded with after-tax dollars and grow tax-free, don’t have RMDs until after the accountholder’s death. But these accounts are less common. As of mid-2023, only 24.3% of households had Roth IRAs, according to ICI.

Leverage ‘bargain basement rates’

Under the Tax Cuts and Jobs Act enacted by President Donald Trump, income tax brackets have been lower since 2018. That provision could be extended past 2025 under the current Republican-controlled Congress.

Slott argues it’s better to pay income taxes now at “bargain basement rates” than withdrawing from a pre-tax IRA when rates could be higher, depending on future legislative changes.

You can do that by contributing to Roth accounts or making so-called Roth conversions, which incur an upfront bill, but grow tax free. With Roth accounts, “there’s no obligation to share with Uncle Sam,” he said.

Plus, Roth accounts avoid tax issues for non-spouse heirs who inherit your IRA since most beneficiaries must follow the “10-year rule,” and empty accounts within 10 years of the original owner’s death.

Roth-only strategy could mean ‘fewer options’

While building a bucket of tax-free retirement savings is appealing to many investors, there could be some trade-offs, experts say.

With only Roth accounts, “you’re taking away choice from individuals … because they have fewer options down the road,” certified public accountant Jeff Levine said at the Horizons conference session.

You should aim to incur taxes at the lowest rates possible, Levine told CNBC. By paying all your taxes in advance, there’s no “dry powder” to withdraw from pre-tax accounts in future lower-income years.

Plus, you could miss future tax planning opportunities, he said.

For example, if you’re philanthropic, you can make so-called qualified charitable distributions, or QCDs, at age 70½ or older, which transfer money directly from an IRA to an eligible non-profit, Levine said.

The move lowers your adjusted gross income since you can use the withdrawal to satisfy RMDs and helps reduce your pretax balance for smaller future required withdrawals.