Why the definition exists
Public offerings of securities must be registered with the SEC, which requires extensive disclosure. Private offerings under Regulation D are exempt from registration, and the accredited investor definition in Rule 501(a) identifies people and entities presumed able to evaluate and bear the risks of investments that come with less mandated disclosure, limited liquidity and the possibility of total loss.
Qualifying is not a judgment that a particular investment is suitable for you. It simply determines which offerings you are legally eligible to participate in.
How individuals qualify
A natural person can qualify through financial thresholds or through certain professional credentials. Meeting any one test is enough.
- Income: individual income above $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent above $300,000 in each of those years, with a reasonable expectation of reaching the same level in the current year.
- Net worth: individual or joint net worth above $1 million, excluding the value of your primary residence.
- Professional certifications: holding a Series 7, Series 65 or Series 82 license in good standing.
- Knowledgeable employees: certain employees of a private fund may qualify for investments in that fund.
- Insiders of the issuer: directors, executive officers and general partners of the company selling the securities.
The net worth calculation in more detail
Net worth is total assets minus total liabilities, but your home is treated specially. The value of your primary residence is left out of assets. Mortgage debt on that residence is generally left out of liabilities too, up to the home’s fair market value. If the mortgage exceeds the home’s value, the excess counts as a liability. And if you increased the debt on your residence in the 60 days before investing, other than to buy the home, that increase generally counts as a liability, which prevents borrowing against a house to cross the threshold.
Joint net worth can include assets held with a spouse or spousal equivalent, and the assets do not have to be held jointly to be counted. The income and net worth thresholds have not been indexed to inflation since they were set, and the SEC has discussed possible changes, but as of 2026 the figures above remain in effect.
How entities qualify
Many investors participate through a trust, LLC, partnership or retirement vehicle, and entities have their own tests.
- Institutions such as banks, registered broker-dealers, investment advisers and insurance companies.
- Corporations, LLCs, partnerships, certain trusts and 501(c)(3) organizations with total assets above $5 million that were not formed for the specific purpose of making the investment.
- Entities owning investments above $5 million that were not formed for the specific purpose of making the investment.
- Any entity in which all of the equity owners are themselves accredited investors.
- Family offices with at least $5 million in assets under management, and their family clients, when certain conditions are met.
Verification in Rule 506(c) offerings
In a 506(c) offering, the sponsor may advertise publicly, but every purchaser must be accredited and the sponsor must take reasonable steps to verify it. Checking a box is not enough. The rule describes several non-exclusive methods, and investors typically experience one of these.
For the income test, reviewing IRS forms that report income, such as W-2s, 1099s, K-1s or filed returns, for the two most recent years, along with a written statement that you expect to reach the threshold this year. For the net worth test, reviewing recent bank, brokerage and similar statements for assets and a consumer credit report for liabilities, along with a representation that all liabilities have been disclosed. Alternatively, a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or CPA stating that they have verified your status within the prior three months. Many sponsors use a third-party verification service to handle documents confidentially.
In March 2025, SEC staff also issued guidance indicating that a high minimum investment can support verification. Where a natural person invests at least $200,000, or an entity at least $1 million, and provides written representations that they are accredited and that the investment is not financed by a third party, and the issuer has no knowledge to the contrary, the issuer may treat that as a reasonable step. Sponsors choose which approach to use.
Self-certification in Rule 506(b) offerings
Rule 506(b) offerings cannot be publicly advertised, and the sponsor typically has a pre-existing relationship with investors. There is no specific verification mandate. Investors usually complete an investor questionnaire in the subscription documents, representing which accredited test they meet, and the sponsor may rely on that representation unless it has reason to doubt it. Some sponsors still ask for supporting information. Either way, the representation is a legal statement, so answer it accurately.