SUPPLEMENT DATED FEBRUARY 10, 1998 TO
PROSPECTUS DATED MAY 1, 1997 FOR
INDIVIDUAL AND GROUP VARIABLE AND MARKET
VALUE ADJUSTED DEFERRED ANNUITY CONTRACTS
KEMPER PASSPORT
ISSUED BY
KEMPER INVESTORS LIFE INSURANCE COMPANY
Effective February 10, 1998, Kemper Investors Life Insurance Company has
revised the Certificates to permit Certificates to be issued in connection
with a Roth IRA. These changes are described below with references to those
parts of the Prospectus that are modified by this Supplement.
The definition of "Qualified Plan Certificate", appearing on page 2 of the
Prospectus, is revised to read as follows:
"Qualified Plan Certificate" - A Certificate issued in connection with
a retirement plan which receives favorable tax treatment under Section
401, 403, 408, 408A or 457 of the Internal Revenue Code."
The following new section "Roth IRAs" is added under "1. Qualified Plan
Types" appearing on page 34 of the Prospectus:
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
PASSUP1 (2/98) 3M (2/98)
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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.
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 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 first-time 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 Certificate must be
distributed by December 31 of the calendar year containing the fifth
anniversary of the Owner's death, subject to certain exceptions.
As described elsewhere in "1. Qualified Plan Types", there is some uncertainty
regarding the proper characterization of the Certificate's death benefit for
purposes of the tax rules governing IRAs (which include Roth IRAs). Persons
intending to use the Certificate in connection with a Roth IRA should seek
competent advice.
