Accredited Investor Requirements: Income, Net Worth and Professional-Credential Tests

Under the SEC’s current qualification criteria, an individual can be an accredited investor by having income above $200,000 individually or $300,000 with a spouse or partner in each of the prior two years and reasonably expecting the same level in the current year; having net worth above $1 million excluding the primary residence; holding a designated securities license in good standing; or meeting a specified relationship-based test.

You need to satisfy one complete route, not combine parts of several tests. Qualification can make you legally eligible for certain private offerings, but it does not mean that an offering is suitable, fairly valued, liquid or approved by the SEC.

Start with a four-path qualification screen

Evaluate the available paths separately and identify the one on which you intend to rely. The route determines which facts you must establish and which records an issuer or verification provider may ask to review.

1. Income: Did individual income exceed $200,000 in each of the two most recent years, with a reasonable expectation of exceeding that amount in the current year? Alternatively, did income with a spouse or spousal equivalent exceed $300,000 in both prior years, with the same current-year expectation?
2. Net worth: Do qualifying assets minus applicable liabilities exceed $1 million, individually or jointly with a spouse or spousal equivalent, after applying the special rules for a primary residence?
3. Professional credential: Do you hold a Series 7, Series 65 or Series 82 license in good standing?
4. Relationship-based status: Are you a qualifying director, executive officer or general partner connected to the issuer; a knowledgeable employee investing in the relevant private fund; or a family client of a qualifying family office?

Do not create a blended case by adding high but insufficient income, net worth below the threshold and general investment experience. Financial sophistication alone is not another natural-person route to accredited status, although sophistication can matter separately under some offering rules.

How the income test works

The individual route requires income above $200,000 in each of the two most recent years and a reasonable expectation of exceeding the same amount in the current year. One strong year is insufficient. In a conditional example, income of $240,000 in the most recent year and $190,000 in the preceding year would not pass the individual test.

The joint route applies income with a spouse or spousal equivalent and requires the combined amount to exceed $300,000 in each prior year, plus a reasonable expectation of exceeding that amount in the current year. A spousal equivalent is a cohabitant in a relationship generally equivalent to that of a spouse; income from an unrelated roommate or another household member cannot simply be added.

Build the worksheet with separate columns for individual and joint income in both historical years. Then record the basis for the current-year expectation, such as compensation already received, contracted salary or supportable recurring business income. A hoped-for bonus, unsigned transaction or unvested equity value may not provide a sound basis for the representation.

The legal test refers to income, not business revenue, gross receipts or the market value of employer stock. If your result depends on pass-through income, large deductions, options, carried interest or irregular gains, ask the issuer’s verifier, a tax professional or a securities lawyer what income measure and documentation should be used before signing.

How to calculate the net-worth test

Net worth must exceed $1 million at the time of the securities sale. Start with the fair value of included assets and subtract applicable liabilities. Potential assets include cash, deposit accounts, marketable securities, retirement accounts, business interests, personal property and real estate other than the primary residence, provided that their values are supportable.

Liabilities may include personal loans, credit-card balances, taxes payable and debt secured by included assets. Use values from reasonably consistent dates, especially when market prices or recent borrowing could change the result before closing.

Joint net worth may be assessed with a spouse or spousal equivalent. List the relevant assets and liabilities of both people; do not add the other person’s assets while omitting their debts. The investment itself need not be purchased jointly, but the issuer may require information from both people when joint finances support the qualification.

Apply conservative values to private-company interests, collectibles and other assets without an observable market price. If qualification depends on a disputed or optimistic valuation, mark the route “needs professional review” rather than treating a subscription questionnaire as proof of value.

Primary residence, mortgages and recent secured debt

The primary residence is excluded from assets, so positive home equity cannot help you reach the threshold. The SEC’s net-worth calculation guidance explains that debt secured by the residence is generally excluded up to the home’s estimated fair value, while secured debt above that value and certain increases during the 60 days before the sale must be treated as liabilities.

Apply the rule in this order:

1. Exclude the full estimated value of the primary residence from assets.
2. Determine the total debt secured by that residence.
3. Count as a liability any secured debt above the residence’s estimated fair value.
4. Review the preceding 60 days for an increase in secured debt.
5. Count a qualifying increase as a liability unless it resulted from acquiring the primary residence.

Consider a conditional example with $1.15 million of non-home assets, $90,000 of ordinary liabilities, a residence worth $700,000 and $750,000 of debt secured by that residence. The $50,000 underwater portion is a liability, so calculated net worth is $1.01 million: $1.15 million minus $140,000. Because the margin is narrow, the investor should refresh asset, debt and home-value estimates near the sale.

Recent home-equity borrowing requires a separate check even when the home is not underwater. Record the balance from 60 days before the sale, the current balance and the reason for each increase so that the issuer or adviser can determine the amount that must be included without double-counting another liability.

Which professional credentials qualify

The designated-credential route covers a Series 7, Series 65 or Series 82 license held in good standing. Holding any one of these credentials can establish accredited status without passing the income or net-worth test.

Passing an examination at some point is not necessarily enough to establish that the associated license is currently in good standing. Check the relevant regulatory record and resolve any question involving termination, expiration, suspension or registration status before relying on this route. The issuer or its verifier may request current confirmation rather than an old examination result.

Do not substitute a credential that has not been designated. A CPA license, CFA charter, law license, finance degree, another securities examination or extensive investing experience does not qualify merely because it demonstrates expertise. If the SEC designates additional credentials in the future, use the list effective when the securities are sold.

Relationship-based routes are narrower

A natural person may qualify as a director, executive officer or general partner of the issuer selling the securities. The category also reaches a director, executive officer or general partner of a general partner of that issuer. Ordinary employment, an advisory relationship or an honorary title does not automatically establish the required role.

A knowledgeable employee can qualify for an investment in the private fund with which the employee has the required relationship. Because this route depends on both the person’s duties and the relevant fund, employment somewhere within an asset-management group should not be treated as a portable credential for unrelated offerings. Ask the fund’s compliance team to confirm the status for the particular investment.

A family client may qualify through a family office that itself meets the accredited-investor conditions and directs the investment. Family membership alone is insufficient. Obtain confirmation that both the office and the person’s family-client status fit the applicable definitions before relying on this route.

What verification may require

The process depends on the exemption and the issuer. The Investor.gov private-placement bulletin states that Rule 506(c) permits general solicitation, allows only accredited investors to purchase and requires the issuer to take reasonable steps to verify accredited status; a Rule 506(b) offering operates under different participation and solicitation conditions.

Prepare a route-specific file rather than sending every financial record you possess:

• For income, organize records covering both prior years and support for the current-year expectation.
• For net worth, assemble recent evidence of included assets and liabilities, plus records showing the value of the primary residence, secured debt and relevant 60-day changes.
• For a credential, obtain current evidence that the Series 7, Series 65 or Series 82 license is in good standing.
• For a relationship-based route, request written confirmation of the role and its connection to the issuer, private fund or qualifying family office.

Ask the issuer which documents and measurement date it will accept before transmitting sensitive material. Also ask how records may be redacted, securely transferred, retained and destroyed. An issuer’s inability to verify the selected route may prevent the purchase even when you believe the underlying facts are sufficient.

Do not treat a questionnaire or self-certification box as permission to estimate generously. Representations in subscription documents may have contractual and legal consequences, so unresolved questions should be raised before execution.

Accreditation does not establish suitability

Accredited status is a legal eligibility classification, not a recommendation or a finding that you can absorb the loss. It does not show that the SEC approved the offering, verified the issuer’s claims or reviewed its valuation.

Conduct a separate investment review after completing the eligibility worksheet. Examine the issuer’s financial statements, capitalization, use of proceeds, management conflicts, fees, transfer restrictions, exit assumptions and the rights attached to the security. Decide whether you could hold the position for an indefinite period and lose the entire amount without impairing essential liquidity or financial goals.

Missing documents, unexplained valuation claims and pressure to invest quickly are reasons to pause. Verification of wealth, credentials or employment does not replace due diligence on the security and the people selling it.

Complete the worksheet before signing

Create a dated file with four sections: income, net worth, professional credentials and relationship-based roles. Mark each route “pass,” “fail” or “needs professional review,” identify the single route on which you plan to rely and attach only the records needed to support it. Recalculate near the sale if asset prices, liabilities, income expectations or credential status change.

Before signing, confirm the offering exemption, qualification date and verification procedure with the issuer. If the result depends on joint finances, a changing relationship, difficult asset valuations, recent home-secured borrowing or the scope of a fund role, obtain advice from a qualified U.S. securities professional instead of stretching an uncertain representation.