Who Qualifies as an Accredited Investor?

Accredited investor status is the main gateway to private investments, from startup rounds to hedge funds and private equity. This guide covers who qualifies, including the categories added in 2020, how issuers verify it, and what it does and does not unlock.

What Is an Accredited Investor?

An accredited investor is an individual or entity that meets specific financial criteria established by the Securities and Exchange Commission (SEC). This designation is based on the premise that individuals with sufficient financial sophistication or resources can bear the economic risk of investing in unregistered securities and may need less regulatory protection.

The Purpose Behind Accredited Investor Rules

The accredited investor concept serves several important purposes:

Investor Protection: Limits access to riskier investments to those presumably able to afford losses
Regulatory Efficiency: Allows certain securities offerings to bypass full SEC registration
Capital Formation: Facilitates efficient private capital raising for businesses
Market Access: Provides a clear standard for determining eligible investors

Legal Foundation

The accredited investor definition is found in Rule 501(a) of Regulation D under the Securities Act of 1933. Rule 506 offerings, the backbone of private placements, are built around it: Rule 506(c) offerings may sell only to accredited investors, and Rule 506(b) offerings may add no more than 35 non-accredited purchasers.

Individual Accredited Investor Criteria

Income Test

An individual qualifies as an accredited investor if they have:

Income Requirements:

Individual Income: $200,000+ in each of the past two years with reasonable expectation of same level in current year
Joint Income: $300,000+ combined with a spouse or spousal equivalent in each of the past two years with reasonable expectation of same level in current year
Consistency Requirement: Income must be demonstrated for two consecutive years
Future Expectation: Must reasonably expect to maintain income level

Net Worth Test

Alternatively, an individual qualifies if they have:

Net Worth Requirements:

Individual Net Worth: $1 million+ (excluding primary residence)
Joint Net Worth: $1 million+ combined with a spouse or spousal equivalent (excluding primary residence)
Primary Residence Exclusion: The home's value is left out entirely, and so is the mortgage up to that value; mortgage debt above the home's value, or added in the 60 days before the investment, counts as a liability
Asset Valuation: Fair market value of assets minus liabilities

Professional Certification Test (Added 2020)

The SEC added professional knowledge criteria in 2020:

Series 7: General Securities Representative license
Series 65: Investment Adviser Representative license
Series 82: Private Securities Offerings Representative license
Good Standing: Licenses must be active and in good standing
Individual Basis: Cannot rely on employer's licenses

Knowledgeable Employee Test

Certain employees of private funds may qualify (added 2020):

Fund Employees: “Knowledgeable employees” of the private fund, such as executive officers and directors
Investment Adviser Employees: Employees of the fund's adviser who participate in its investment activities
Knowledge Requirement: Must have knowledge of fund's investment activities
Fund-Specific: Status applies only to investments in that fund

Entity Accredited Investors

Traditional Entity Categories

Several types of entities automatically qualify as accredited investors:

Banks: Commercial banks and similar institutions
Insurance Companies: Licensed insurance companies
Registered Investment Companies: Mutual funds and ETFs
Business Development Companies: BDCs under Investment Company Act
Small Business Investment Companies: SBICs licensed by SBA
Broker-Dealers and Investment Advisers: Registered broker-dealers, and SEC-registered, state-registered, and exempt reporting advisers (the advisers added in 2020)
Employee Benefit Plans: Plans with $5 million+ in assets, or whose investment decisions are made by a bank, insurer, or registered adviser
501(c)(3) Organizations: Charities with $5 million+ in assets

Asset-Based Entity Qualification

Other entities can qualify in any one of three ways:

$5 Million in Assets: Corporations, partnerships, LLCs, business trusts, and charities with more than $5 million in total assets, if not formed to acquire the securities offered
$5 Million in Investments (added 2020): Any other entity, such as a tribal government or a foreign fund, owning more than $5 million of “investments,” if not formed to acquire the securities offered
All Owners Accredited: Any entity in which every equity owner is an accredited investor, regardless of size

Family Offices and Related Entities (Added 2020)

New categories added in 2020 amendments:

Family Offices: With $5 million+ in assets under management, not formed to acquire the securities offered, and directed by a person with financial knowledge and experience (see what is a family office)
Family Clients: Clients of qualifying family offices, when that office directs the investment
LLCs: Confirmed as eligible under the $5 million asset test, on the same footing as corporations and partnerships
Investment Advisers: SEC-registered, state-registered, and exempt reporting advisers

Rural Business Investment Companies

RBICs licensed under the Small Business Act automatically qualify as accredited investors.

Changes to the Definition

2020 Amendments

The SEC significantly updated the accredited investor definition in August 2020:

Professional Certifications: Added Series 7, 65, and 82 license holders
Knowledgeable Employees: Expanded definition for private fund employees
Family Offices: Added family offices and their clients
Investment Advisers: Added registered and exempt reporting advisers
Entities: Added the $5 million investments test and confirmed LLC eligibility

Spousal Equivalents (2020)

The amendments clarified that "spousal equivalent" includes:

Individuals in committed relationships similar to marriage
Not limited to legally married couples
Applies to both income and net worth tests
Must meet same relationship criteria as spouses

Future Considerations

The Dodd-Frank Act requires the SEC to review the definition every four years. The dollar thresholds are not indexed to inflation, so each review revisits the same debates:

Inflation: The $200,000 and $1 million thresholds date from 1982 and are not inflation-adjusted, so more households qualify every year
Additional Certifications: Potential expansion of professional criteria
Sophistication Measures: Alternative measures of investor sophistication
Wealth Inequality: Balancing access with protection

Verification Requirements

What Documentation Is Required

In a Rule 506(b) offering, the issuer only needs a reasonable belief that an investor is accredited, usually from a questionnaire. In a Rule 506(c) offering, it must take reasonable steps to verify status, such as:

For Income Verification:

Tax Returns: W-2s, 1099s, or tax returns for past two years
Pay Stubs: Recent pay stubs showing year-to-date income
Employment Letters: Letters from employers confirming salary
Accountant Letters: CPA verification of income

For Net Worth Verification:

Bank Statements: Recent statements showing account balances
Investment Statements: Brokerage and investment account statements
Property Appraisals: Recent appraisals of real estate holdings
Debt Statements: Documentation of liabilities and mortgages
Net Worth Calculations: Detailed asset and liability schedules

For Professional Certifications:

License Verification: Proof of active professional licenses
FINRA Records: Verification through FINRA databases
Good Standing: Confirmation licenses are current and valid

Verification Standards

The level of verification required depends on the relationship:

Existing Customers: May rely on existing records if reasonably current
Previously Verified Investors: An investor verified for a 506(c) offering within the past five years can be re-verified with a written representation
Third-Party Verification: Can rely on written confirmation from a broker-dealer, registered adviser, attorney, or CPA
High Minimum Investment: SEC staff guidance issued in 2025 treats a minimum investment of $200,000 for individuals ($1 million for entities), plus written representations, as a reasonable step
Reasonable Belief: Must have reasonable belief in accuracy

What Accredited Investor Status Provides Access To

Private Investment Opportunities

Private Placements: Direct investments in private companies
Hedge Funds: Alternative investment strategies
Private Equity: Buyout and growth equity funds
Venture Capital: Early-stage startup investments
Real Estate Funds: Private real estate investment vehicles
Private Credit: Direct lending and credit strategies

Specific Security Types

Rule 506 Offerings: Private placements under Regulation D
Private Fund Interests: Most 3(c)(1) funds; funds relying on 3(c)(7) also require qualified purchaser status

Accreditation is not needed for everything private. Anyone can invest in Reg CF offerings (subject to annual limits for non-accredited investors) or Reg A offerings (with a 10% of income or net worth limit in non-listed Tier 2 deals). Rule 144A deals are limited to qualified institutional buyers, a separate and much higher bar.

Investment Platforms and Services

Accredited Platforms: Online investment platforms for accredited investors
Private Wealth Services: Exclusive investment advisory services
Alternative Investments: Access to non-traditional asset classes
Pre-IPO Investments: Opportunities to invest before public offerings

Common Misconceptions

About Primary Residence

Misconception: Can include full home value in net worth
Reality: The home and the mortgage on it (up to its value) are both left out
Exception: An underwater mortgage, or a cash-out refinance in the prior 60 days, reduces net worth

About Income Timing

Misconception: One year of high income is sufficient
Reality: Must demonstrate income in each of the past two years
Future Expectation: Must reasonably expect to maintain income level

About Professional Licenses

Misconception: Any financial license qualifies
Reality: Only specific licenses (Series 7, 65, 82) qualify
Active Status: Licenses must be current and in good standing

About Entity Qualification

Misconception: Any entity with accredited owners qualifies
Reality: An entity qualifies if all of its owners are accredited, or through one of the asset or investment tests
Formation Purpose: Cannot be formed solely to make the investment

International and State Considerations

Foreign Investors

Accredited investor rules generally apply to foreign investors investing in U.S. securities:

Same Standards: Must meet same income/net worth thresholds
Currency Conversion: Convert foreign currency to U.S. dollars
Documentation: May require additional verification
Tax Implications: Consider U.S. tax consequences

State Law Variations

For Rule 506 offerings, federal law preempts state registration and merit standards, so the federal definition controls. States still matter:

Notice Filings: Most states require a notice filing (a copy of Form D) and a fee
Anti-Fraud: States keep full anti-fraud authority
Smaller Offerings: Rule 504 and intrastate offerings remain subject to state rules, which may use their own investor standards

Practical Implications

For Investors

Expanded Access: Ability to participate in private markets
Higher Risk: Access to riskier, less regulated investments
Due Diligence: Greater responsibility for investment evaluation
Limited Liquidity: Many investments have restricted liquidity
Higher Minimums: Typically require larger investment amounts

For Issuers

Verification Burden: Must verify investor qualifications
Documentation: Must maintain adequate verification records
Limited Marketing: Restrictions on general solicitation (Rule 506(b))
Ongoing Obligations: Potential ongoing investor communication requirements

For Financial Advisors

Client Qualification: Must understand and verify client status
Best Interest: Must meet Regulation Best Interest or fiduciary duties, which go beyond accreditation
Professional Standards: Series licenses may qualify advisors as accredited
Documentation: Must maintain proper verification records

Conclusion

Accredited investor status serves as a critical gateway to private investment opportunities, balancing investor protection with capital formation needs. Understanding the specific criteria—whether based on income, net worth, or professional certifications—is essential for investors seeking to access private markets.

The 2020 amendments added a knowledge-based path (professional licenses and knowledgeable employees) to the long-standing wealth tests, and widened the entity categories.

For investors considering whether they qualify, it's important to carefully review the specific requirements and ensure proper documentation. Professional advice from qualified attorneys, accountants, or financial advisors can help navigate the complexities and ensure compliance with all applicable requirements.

While accredited investor status opens doors to potentially lucrative investment opportunities, it also comes with increased responsibility for due diligence and risk assessment. The regulatory framework assumes that accredited investors can bear these risks and make informed decisions with limited regulatory oversight.

Explore the Data

Accredited-investor platforms
Form D offerings in the embarc dashboard, including how many non-accredited investors each one reports
Offerings open to everyone: Reg CF and Reg A issuers