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Filed Pursuant to Rule 497(e)
File No. 33-28889
SUPPLEMENT DATED JANUARY 12, 1998 TO THE PROSPECTUS
DATED MAY 1, 1997 FOR THE CANADA LIFE
OF AMERICA VARIABLE ANNUITY ACCOUNT 1
Effective January 12, 1998, the section in the prospectus captioned
Introduction under the Federal Tax Status section is amended to include the
following:
The policy may be purchased on a nonqualified tax basis ("Nonqualified Policy")
or purchased and used in connection with plans qualifying for favorable tax
treatment ("Qualified Policy"). The Qualified Policy was designed for use by
individuals whose premium payments are comprised of proceeds from and/or
contributions under retirement plans which are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 401(k), 403(a),
403(b), 408, 408A or 457 of the Code. The ultimate effect of federal income
tax on the amounts held under a policy, or annuity payments, and on the
economic benefit to the owner, any annuitant, or the beneficiary depends on the
type of retirement plan, on the tax and employment status of the individual
concerned and on our tax status. In addition, certain requirements must be
satisfied in purchasing a Qualified Policy with proceeds from a tax-qualified
plan and receiving distributions from a Qualified Policy in order to continue
receiving favorable tax treatment. Therefore, purchasers of Qualified Policies
should seek legal and tax advice regarding the suitability of a policy for
their situation, the applicable requirements, and the tax treatment of the
rights and benefits of a policy. The following discussion assumes that
Qualified Policies are purchased with proceeds from and/or contributions under
retirement plans that receive the intended special federal income tax
treatment.
Effective January 12, 1998, the section in the prospectus captioned Taxation of
Qualified Plans under the Federal Tax Status section is amended to include the
following:
SIMPLE IRAS
Beginning January 1, 1997, certain small employers may establish SIMPLE plans
as provided by Section 408(p) of the Code, under which employees may elect to
defer a percentage of compensation up to $6,000 (as increased for cost of
living adjustments). The sponsoring employer is required to make matching or
non-elective contributions on behalf of employees. Distributions from SIMPLE
IRAs are subject to the same restrictions that apply to IRA distributions and
are taxed as ordinary income. Subject to certain exceptions, premature
distributions prior to age 59 1/2 are subject to a 10 percent penalty tax,
which is increased to 25 percent if the distribution occurs within the first
two years after the commencement of the employee's participation in the plan.
The failure of the SIMPLE IRA to meet Code requirements may result in adverse
tax consequences.
ROTH IRAS
Effective January 1, 1998, section 408A of the Code permits certain eligible
individuals to contribute to a Roth IRA. Contributions to a Roth IRA, which
are subject to certain limitations, are not deductible and must be made in cash
or as a rollover or transfer from another Roth IRA or other IRA. A rollover
from or conversion of an IRA to a Roth IRA may be subject to tax and other
special rules may apply. Distributions from a Roth IRA generally are not
taxed, except that, once aggregate distributions exceed contributions to the
Roth IRA, income tax and a 10 percent penalty tax may apply to distributions
made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the
five taxable years starting with the year in which the first contribution is
made to the Roth IRA.
Effective January 12, 1998, the section in the prospectus captioned Minimum
Distribution Requirements ("MDR") for IRAs under the Federal Tax Status section
is amended to include the following:
No minimum distribution is required from a Roth IRA during your life, although
upon your death certain distribution requirements apply.
The Code Minimum Distribution Requirements also apply to distribution from
qualified plans other than IRAs. For qualified plans under section 401(a),
401(k), 403(a), 403(b), and 457, the code requires that distributions generally
must commence no later than the later of April 1 of the calendar year following
the calendar year in which the owner (or plan participant) (i) reaches age
701/2 or (ii) retires, and must be made in a specified form or manner. If the
plan participant is a "5% owner" (as defined in the code), distributions
generally must begin no later than the date described in (i). You are
responsible for ensuring that distributions from such plans satisfy the Code
minimum distribution requirements.
