The accredited investor definition covers a group that controls $109.5 trillion in wealth. This represents 78.7% of America’s private wealth.
Only 14.8% of American households meet accredited investor status, which gives them access to exclusive investment opportunities not available to others. The SEC defines accredited investors through financial thresholds. You need either a net worth over $1 million (excluding your primary residence) or annual earnings above $200,000 individually ($300,000 with a spouse) for two consecutive years.
The SEC altered the requirements in 2020 by adding qualifications beyond wealth metrics. Financial professionals who hold Series 7, Series 65, or Series 82 licenses can now qualify as accredited investors. This change made these opportunities accessible to more skilled professionals.
This piece explains the accredited investor requirements under Rule 501 of the Securities Act of 1933. Understanding these criteria helps you take the first step toward hedge funds, private equity deals, and venture capital opportunities.
What Is an Accredited Investor and Why It Matters
The accredited investor designation is a vital gateway to private market investments. This classification is the life-blood of private securities regulations in the United States and determines who can participate in exclusive investment opportunities. You need to understand this designation if you want to expand your investment portfolio beyond traditional public markets.
Definition under SEC Rule 501
Rule 501 of Regulation D of the Securities Act of 1933 defines an accredited investor. The government created this framework during the Great Depression to set specific criteria that individuals and entities must meet to qualify for this status.
If you have plans to become an accredited investor, you can qualify through several paths:
- Financial Criteria: You qualify by having a net worth over $1 million (individually or jointly with a spouse or spousal equivalent), excluding your primary residence’s value. Another way is through income—earning more than $200,000 individually or $300,000 jointly with a spouse in each of the two most recent years. You should also expect to maintain the same income level this year.
- Professional Credentials: Since December 2020, you can qualify based on your professional knowledge and expertise. This includes holding a Series 7 (General Securities Representative), Series 65 (Investment Adviser Representative), or Series 82 (Private Securities Offerings Representative) license in good standing.
- Position-Based Qualification: You automatically qualify as an accredited investor if you’re a director, executive officer, or general partner of the company issuing securities (or of a general partner of that issuer).
- Knowledge-Based Qualification: Private funds’ “knowledgeable employees” may qualify to invest in those funds.
Entities can become accredited through these paths:
- Organizations with assets over $5 million, including corporations, partnerships, LLCs, and trusts not specifically formed to acquire the offered securities.
- Entities where all equity owners are accredited investors themselves.
- Banks, insurance companies, registered investment companies, and business development companies.
- Family offices with assets under management over $5 million that aren’t formed specifically to acquire the offered securities. Their investments must be directed by someone with suitable financial knowledge.
This complete definition ensures only those with enough financial resources or expertise can access certain investment opportunities.
Purpose of the accredited investor rule
The SEC created these rules to protect less sophisticated or financially vulnerable investors from high-risk, complex investments that lack traditional registered securities’ protections.
Private securities offerings to accredited investors don’t need the same level of mandatory disclosures as public offerings registered with the SEC. Companies and private funds making these exempt offerings don’t have to provide the detailed information required in registered offerings. This creates two investment marketplaces—one with standard regulatory protections for general investors and another with fewer restrictions for those who can evaluate investment risks on their own.
The rules assume accredited investors have:
- The financial sophistication to assess investment risks and rewards without needing regulatory disclosure filings, or
- Enough financial resources to handle potential losses without devastating effects.
This designation lets companies raise capital more efficiently through SEC registration requirement exemptions. These exemptions make it easier for businesses to get funding, which helps startups and small enterprises that might find the full registration process too expensive or time-consuming.
This regulatory structure balances protecting typical investors while helping businesses access capital efficiently.
Who benefits from this designation
The accredited investor framework helps multiple parties in the financial ecosystem.
Accredited investors get access to exclusive investment opportunities that aren’t available to the general public. These include:
- Private equity opportunities and venture capital funds investing in early-stage companies with high growth potential
- Hedge funds using sophisticated investment strategies
- Private placements offering higher yields than public markets
- Real estate investment opportunities with better returns
- Angel investing in promising startups
- Equity crowdfunding in private companies
More investment options are available to accredited investors, which lets them diversify beyond traditional stocks, bonds, and mutual funds. This diversification can reduce risk exposure, especially during public market volatility.
Companies and funds get these important benefits:
- Capital access without the heavy registration requirements of public offerings
- Faster fundraising with lower compliance costs
- Freedom to share sensitive business information privately with potential investors
- More flexibility in structuring investment offerings
The numbers show how important this framework is to the American economy. The SEC reports that exempt offerings to accredited investors make up about 70% of all capital raised in the United States. Rule 506(b) under Regulation D is the most used exemption for private offerings.
The number of accredited investor households in the United States has grown from 1.15 million in 1983 to 12.15 million in 2013. This growth happened because the SEC hasn’t adjusted the income or net worth thresholds for inflation, which has increased the pool of eligible investors.
This framework connects promising businesses that need capital with sophisticated investors looking beyond public markets. Learning how to become an accredited investor will give you access to many more investment opportunities.
Accredited Investor Requirements: Financial and Professional Criteria
Access to exclusive investment opportunities becomes available once you qualify as an accredited investor. The Securities and Exchange Commission (SEC) has set clear financial and professional requirements you need to meet before participating in private market offerings. Let’s get into each way you can qualify.
Income thresholds for individuals and couples
The income threshold offers one of the easiest ways to qualify as an accredited investor. You must show:
- Individual income: An annual income above $200,000 in each of the two most recent years. You should also expect to make the same amount this year.
- Joint income: A combined annual income above $300,000 with your spouse or spousal equivalent in each of the two most recent years. You should expect to keep making this amount.
These income thresholds haven’t changed since 1982. This is a big deal as it means that if adjusted for inflation, individual income would need to be over $500,000, and joint income would need to be above $740,000.
Note that you can’t mix different qualification methods. To name just one example, see how you can’t use one year of individual income and then two years of joint income. You must stick to one path.
Net worth calculation and exclusions
The net worth pathway offers another way to qualify as an accredited investor. Your individual or joint net worth must be over $1 million at the time of investment. The calculation needs you to:
- Add up all your assets
- Subtract all your liabilities
- Make sure the total exceeds $1 million
The SEC changed this calculation in 2011 by taking out your primary residence. This made qualifying harder without changing the $1 million requirement.
Here are the key guidelines for calculating net worth:
- Primary residence: Your main home’s value stays out of the asset calculation.
- Mortgage considerations: Debt on your primary home usually doesn’t count as a liability if your home’s fair market value is more than the debt.
- Underwater mortgages: You must include any amount your mortgage exceeds your home’s value as a liability.
- Recent financing: Any new home-secured debt from the last 60 days before investing counts as a liability. This applies even with positive home equity, but excludes the actual home purchase.
This last rule stops people from artificially boosting their net worth through home equity loans right before investing.
Professional certifications (Series 7, 65, 82)
The SEC made a big change in 2020 by adding new ways to qualify based on financial expertise rather than just wealth. Now, specific professional licenses in good standing make you eligible whatever your income or net worth.
These three FINRA licenses will qualify you:
- Series 7: Licensed General Securities Representative
- Series 65: Licensed Investment Adviser Representative
- Series 82: Licensed Private Securities Offerings Representative
Keeping your qualification through professional certification means you must:
- Follow all FINRA rules
- Meet your state’s licensing rules
- Pay annual fees
- Complete ongoing education requirements
The SEC might add other professional certifications later, creating more ways for financially savvy individuals to qualify.
Knowledgeable employees of private funds
“Knowledgeable employees” of private funds can invest in their funds as accredited investors. This group includes:
- Executive officers, directors, trustees, or general partners of the private fund
- Advisory board members of the private fund
- Employees who regularly work on fund investments
You need 12 months of direct involvement with the fund’s investment activities to qualify. This only applies to investments in your specific fund or other funds your employer manages.
This rule recognizes that fund professionals understand investment risks and opportunities well, even if they don’t meet traditional financial requirements.
The SEC’s main goal remains clear through all these qualification paths: making sure only investors with enough resources or knowledge can join higher-risk private offerings. Understanding these requirements starts your journey toward exclusive investment opportunities.
How Entities Qualify as Accredited Investors
The SEC grants accredited investor status to entities that meet specific criteria, beyond just individuals. This allows corporations, trusts, and other organizations to access private investment opportunities. Business entities need to understand these qualification pathways to vary their investment portfolios through private market access.
Corporations, LLCs, and trusts with $5M+ in assets
Asset holdings are the foundations of entity qualification. These organizations can qualify:
- Corporations, partnerships, and limited liability companies (LLCs) with assets over $5 million that weren’t formed just to acquire the offered securities
- Trusts with assets over $5 million that weren’t created to purchase the offered securities
- 501(c)(3) organizations and employee benefit plans with assets over $5 million
LLCs are a relatively new addition to this category. They were rare when the definition was last updated in 1989, and their formal inclusion shows how the accredited investor framework has modernized.
The SEC has expanded qualification pathways with a “catch-all” provision. Any entity type not listed elsewhere can become an accredited investor if it:
- Has investments (not just assets) over $5 million
- Wasn’t formed just to acquire the offered securities
The difference between “assets” and “investments” is a big deal as it means that the investment requirement sets a higher bar than the asset requirement. Not all assets count as investments under SEC definitions. This category helps Native American tribes, governmental bodies, and future entity types.
Family offices have special provisions. They can become accredited investors when they:
- Manage at least $5 million in assets
- Weren’t formed just to acquire the offered securities
- Have a director who knows how to assess the merits and risks of potential investments
Entities where all equity owners are accredited
Entities can qualify as accredited investors whatever their asset or investment holdings. Any entity qualifies if all its equity owners are accredited investors themselves. Even a new entity with minimal assets can qualify if every owner meets individual accredited investor standards.
The SEC lets you trace various forms of equity ownership to natural persons to determine accredited investor status. The entity becomes accredited if these natural persons and all other equity owners qualify.
This flexibility works well for:
- New investment vehicles
- Family investment entities
- Small business investment clubs
- Private investment companies with assets under $5 million
Registered investment advisers and
Financial entities get special treatment under accredited investor rules. Investment advisers automatically qualify without meeting asset thresholds or wealth requirements. This applies to:
- SEC-registered investment advisers
- State-registered investment advisers
- Exempt reporting advisers under Section 203(m) or Section 203(l) of the Investment Advisers Act
SEC-registered broker-dealers automatically qualify as accredited investors.
Other financial institutions that qualify are:
- Banks and savings and loan associations
- Insurance companies
- Registered investment companies
- Business development companies
- Small business investment companies
- Rural business investment companies
Many entities can access private investment opportunities through these qualification pathways. High-net-worth investors and family offices can schedule a strategy call with expert advisors to guide them through accredited investor requirements.
