SUPPLEMENT DATED FEBRUARY 25, 1998
TO
PROSPECTUS DATED MAY 1, 1997
FOR
MODIFIED GUARANTEED ANNUITY CONTRACTS
ISSUED BY PROTECTIVE LIFE INSURANCE COMPANY
ROTH IRAS
Recently enacted Section 408A of the Code permits eligible
individuals to contribute to a type of IRA known as a "Roth IRA." Roth IRAs
differ from other IRAs in several respects. Among the differences is that,
although contributions to a Roth IRA are not deductible, "qualified
distributions" from a Roth IRA will be excludable from income. Additionally, the
eligibility and mandatory distribution requirements for Roth IRAs differ from
non-Roth IRAs.
CONTRIBUTIONS: The maximum amount of contributions allowable
for any taxable year to all Roth IRAs maintained for an individual (the
"contribution limit") generally is the lesser of $2,000 and 100% of compensation
for the taxable year. The contribution limit is reduced by the amount of any
deductible and non-deductible contributions to a non-Roth IRA. For individuals
who file a joint return and receive less compensation for the taxable year than
their spouse, special rules apply.
For taxpayers with adjusted gross incomes in excess of certain
limits no contribution (or only a reduced contribution) to a Roth IRA is
allowed. For married individuals filing a joint return, the contribution limit
is phased out for adjusted gross income between $150,000 and $160,000. (Special
rules apply to married individuals filing separate returns.) For single
individuals, the contribution limit is phased out for adjusted gross incomes
between $95,000 and $110,000.
ROLLOVERS: A rollover may be made to a Roth IRA only if it is
a "qualified rollover contribution." A "qualified rollover contribution" is a
rollover contribution to a Roth IRA from another Roth IRA or from a non-Roth
IRA, but only if such rollover contribution meets the rollover requirements for
IRAs under section 408(d)(3) of the Code. In addition, a transfer may be made to
a Roth IRA directly from another Roth IRA or from a non-Roth IRA. Persons with
adjusted gross incomes in excess of $100,000 or who are married and file a
separate return are not eligible to make a qualified rollover contribution or a
transfer in a taxable year from a non-Roth IRA to a Roth IRA.
In the case of a qualified rollover contribution or a transfer
from a non-Roth IRA to a Roth IRA, any portion of the amount rolled over which
would be includible in gross income were it not part of a qualified rollover
contribution or a nontaxable transfer will be includible in gross income.
However, the 10 percent penalty tax on premature distributions generally will
not apply. If such a rollover occurs before January 1, 1999, any portion of the
amount rolled over which is required to be included in gross income must be
included ratably over the 4-taxable year period beginning with the taxable year
in which the rollover is made.
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CONVERSIONS: All or part of amounts in a non-Roth IRA may be
converted into a Roth IRA. Such a conversion can be made without taking an
actual distribution from the IRA. For example, an individual may make a
conversion by notifying the IRA issuer or trustee, whichever is applicable. The
conversion of an IRA to a Roth IRA is a special type of qualified rollover
distribution. Hence, the IRA participant must be eligible to make a qualified
rollover distribution in order to convert an IRA to a Roth IRA. A conversion
typically will result In the inclusion of some or all of the IRA value in gross
income, as described above.
UNDER SOME CIRCUMSTANCES, IT MAY NOT BE ADVISABLE TO ROLLOVER,
TRANSFER, OR CONVERT ALL OR PART OF A NON-ROTH IRA TO A ROTH IRA. WHETHER AN
OWNER SHOULD DO SO WILL DEPEND ON THE IRA OWNER'S PARTICULAR FACTS AND
CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED TO, SUCH FACTORS AS WHETHER THE OWNER
IS QUALIFIED TO MAKE SUCH A ROLLOVER, TRANSFER, OR CONVERSION, HIS OR HER
FINANCIAL SITUATION, AGE, CURRENT AND FUTURE INCOME NEEDS, YEARS TO RETIREMENT,
CURRENT AND FUTURE TAX RATES, AND ABILITY AND DESIRE TO PAY CURRENT INCOME TAXES
WITH RESPECT TO AMOUNTS ROLLED OVER, TRANSFERRED, OR CONVERTED. PERSONS
CONSIDERING A ROLLOVER, TRANSFER, OR CONVERSION SHOULD CONSULT A QUALIFIED TAX
ADVISOR.
QUALIFIED DISTRIBUTIONS: Any "qualified distribution" from a
Roth IRA is excludible from gross income. A "qualified distribution" is a
payment or distribution which satisfies two requirements. First, the payment or
distribution must be (a) made after the Owner attains age 59 1/2, (b) made after
the Owner's death, (c) attributable to the Owner being disabled, or (d) a
qualified firsttime homebuyer distribution within the meaning of section
72(t)(2)(F) of the Code. Second, the payment or distribution must be made in a
taxable year that is at least five years after (a) the first taxable year for
which a contribution was made to any Roth IRA established for the Owner, or (b)
in the case of a payment or distribution properly allocable to a qualified
rollover contribution from a non-Roth IRA (or income allocable thereto), the
taxable year in which the rollover contribution was made.
NONQUALIFIED DISTRIBUTIONS: A distribution from a Roth IRA
which is not a qualified distribution is generally taxed in the same manner as a
distribution from non-Roth IRAs. However, such a distribution will be treated as
made first from contributions to the Roth IRA to the extent that such
distribution, when added to all previous distributions from the Roth IRA, does
not exceed the aggregate amount of contributions to the Roth IRA. Generally, all
Roth IRAs are aggregated to determine the tax treatment of distributions.
MANDATORY DISTRIBUTIONS: Distributions from a Roth IRA need
not commence at age 70 1/2. However, if the Owner dies before the entire
interest in a Roth IRA is distributed, any remaining interest in the Contract
must be distributed by December 31 of the calendar year containing the fifth
anniversary of the Owner's death, subject to certain exceptions.
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