Accredited Investor Basics: Do You Qualify?

Accredited investor status opens doors to investment opportunities that aren't available to the general public. Understanding whether you qualify and what it means can help you make informed decisions about private market investing.

What is an Accredited Investor?

An accredited investor is an individual or entity that meets certain financial criteria set by the SEC. This designation allows participation in private securities offerings that don't require SEC registration.

Why It Matters

Accredited investors can access private equity, venture capital, hedge funds, and other alternative investments that may offer higher potential returns—along with higher risks.

Individual Qualification Criteria

You qualify as an accredited investor if you meet any one of the following:

Income Test

Individual: Earned income exceeding $200,000 in each of the last two years, with reasonable expectation of the same this year
Joint with spouse/partner: Combined income exceeding $300,000 in each of the last two years, with reasonable expectation of the same this year

Net Worth Test

Individual or joint net worth exceeding $1 million, excluding the value of your primary residence

Professional Credentials

Hold a Series 7, Series 65, or Series 82 license in good standing
Be a "knowledgeable employee" of a private fund for investments in that fund

Important Note

When calculating net worth, you must exclude the value of your primary residence. However, you may also need to consider any mortgage debt that exceeds the home's fair market value.

Entity Qualification Criteria

Entities can also be accredited investors:

Financial Thresholds

Trust: Total assets exceeding $5 million, not formed specifically to acquire the securities
Entity: All equity owners are individually accredited investors
Bank, insurance company, or investment company: As defined in relevant securities laws

Other Qualifying Entities

Family offices with at least $5 million in assets
Certain employee benefit plans
Registered broker-dealers

Verification Process

How accreditation is verified depends on the offering type:

506(b) Offerings

Self-certification is typically sufficient
Issuer relies on investor's representations
Questionnaires and subscription agreements

506(c) Offerings

The issuer must take "reasonable steps" to verify, which may include:

Income - Tax returns, W-2s, or third-party verification letter
Net Worth - Bank/brokerage statements, credit report, CPA letter
Professional - FINRA license verification (Ex: Series 7, 65, or 82)
Third-party - Letter from CPA, attorney, or registered broker-dealer

Common Misconceptions

"My home equity counts toward net worth"

False. The value of your primary residence is excluded from the net worth calculation.

"I only need to meet the criteria once"

Partially true. Each investment may require re-verification, especially for 506(c) offerings.

"Accredited investor status is permanent"

False. Your status depends on meeting criteria at the time of investment. Circumstances can change.

Pro Tip

Keep documentation of your accredited status readily available. Tax returns, brokerage statements, and professional licenses can speed up the verification process for future investments.

Benefits of Accredited Status

Access to More Opportunities

Private equity and venture capital funds
Real estate syndications
Hedge funds
Pre-IPO investments
Private credit opportunities

Potential for Higher Returns

Less efficient markets may offer opportunities
Direct negotiation on terms possible
Earlier stage investments available

Portfolio Diversification

Assets uncorrelated with public markets
Different risk/return profiles
Alternative income streams

Risks to Consider

Being accredited doesn't mean an investment is right for you:

Illiquidity: Private investments often can't be sold easily
Information asymmetry: Less disclosure than public companies
Higher risk: Many private companies fail
Long time horizons: Capital may be locked up for years
Limited recourse: Fewer regulatory protections

Due Diligence is Essential

Accredited investor status is about financial capacity, not investment expertise. Always conduct thorough due diligence before investing.

Next Steps

Ready to check your accreditation status?

Review your finances: Calculate your income and net worth
Gather documentation: Tax returns, brokerage statements, licenses
Use our tool: Check your accredited investor status
Consult professionals: Tax advisors and attorneys can help with complex situations

Unsure if you qualify? Use our free Accredited Investor Status Check tool to find out.