Accredited Investor Definition: Income and Net Worth Thresholds

An accredited investor is an individual (or entity) who meets specific income or net worth thresholds and therefore qualifies to participate in unregistered securities offerings that are not available to the general public, such as private placements, hedge funds, and venture capital investments.

The individual income test

The most commonly used accredited investor definition for individuals is based on income. An individual qualifies if he or she had a gross income (alone or jointly with spouse) of at least $200,000 in each of the two most recent calendar years and reasonably expects to earn that income in the current year. For married couples filing jointly, the threshold is $300,000.

“Gross income” means total income before taxes and deductions. It includes wages, self-employment income, investment gains and losses, business profits, and other sources. The individual must meet the threshold for two consecutive years before relying on the accreditation status; an isolated high-income year is insufficient. The expectation of future income (for the current or next year) is assessed reasonably—meaning that a person with a stable job or business is assumed to continue earning, unless circumstances suggest otherwise.

This income-based test is straightforward to verify. An issuer can request recent tax returns or, in the case of a private equity fund or hedge fund, rely on attestations or third-party verification services. The issuer must have a reasonable belief that the investor meets the threshold; willful blindness or deliberate failure to verify is not acceptable.

The individual net worth test

Alternatively, an individual qualifies as an accredited investor if he or she has a net worth of at least $1,000,000. Net worth is calculated as total assets minus total liabilities. Critically, the net worth threshold excludes the value of the investor’s primary residence. This means a person with a $1.5 million home and $500,000 in other assets does not qualify on net worth alone (the home is excluded, leaving only $500,000 of other assets), even though his or her total net worth is $2,000,000.

The net worth figure is assessed at the time the investor is being offered the unregistered security. Assets are valued at fair market value (or for illiquid assets, a reasonable estimate). An investor’s portfolio may fluctuate, and a minor dip below $1,000,000 need not disqualify him immediately, but the investor should not be offered or sell into an investment if there is a material question about the net worth threshold.

Verification of net worth is less straightforward than income verification. An issuer might ask for bank statements, brokerage statements, real estate appraisals, or a detailed net worth schedule. In practice, investors are often asked to certify their net worth, and the issuer maintains evidence of this certification. Third-party verification services can also be used for larger offerings.

Entity thresholds

Entities—such as banks, investment companies, corporations, partnerships, and trusts—have separate accreditation standards. A bank or savings and loan is automatically accredited. An investment company registered under the Investment Company Act of 1940 is accredited. A private business or trust must have total assets of at least $5,000,000 to qualify.

These entity thresholds are meant to capture institutional investors and large, established private entities that are assumed to have sufficient financial sophistication to assess risk without the protection of a registered offering. A family office managing more than $5,000,000 for a single family qualifies. A nonprofit organization with $5,000,000 or more in assets qualifies.

Partnerships and joint ventures must have assets of at least $5,000,000, measured at the time of investment. The $5,000,000 standard is a bright-line rule and is usually verified through financial statements or audit.

Professional credential alternatives

In addition to income and net worth tests, the SEC recognizes certain professional credentials as evidence of sophistication. An individual who is (or was within two years) a broker, investment adviser, or investment company officer generally qualifies. So does a person with a series 7, series 65, or equivalent securities industry license.

The rationale is that individuals with industry expertise are assumed to understand unregistered securities and their risks, regardless of their personal income or net worth. These credential-based alternatives are less commonly relied upon in practice—most investors qualify through the income or net worth tests—but they are available and have helped broaden the pool of accredited investors.

The “spousal income” issue and joint accreditation

A married couple filing jointly can combine their income to reach the $300,000 threshold. If both spouses have gross income of $150,000 each, they collectively qualify. However, if only one spouse has income and the other has none, the couple must use the joint threshold of $300,000 for that single-income spouse to qualify jointly.

A married couple also has the option of using the net worth test; for net worth purposes, spousal assets are typically combined. Two spouses with separate $600,000 net worth pools would each individually fail the $1,000,000 threshold, but if they pool assets and hold them jointly, they exceed the threshold.

Changes and recent guidance

The accredited investor definition has been adjusted several times. In 2020, the SEC modernized certain entity thresholds, aligning them with inflation adjustments. In 2023, the SEC further refined rules around family offices and spousal income. These updates generally aim to reflect inflation and to expand access to unregistered offerings for middle-to-upper-income households.

However, the core $200,000 single and $300,000 joint income thresholds, and the $1,000,000 net worth threshold, have remained stable for many years. Proposed legislation periodically suggests raising these thresholds to exclude lower-net-worth individuals, but no such increase has passed Congress.

Use in private offerings

The accredited investor definition is the gateway to Regulation D Rule 506(b) offerings, in which an issuer may sell to an unlimited number of accredited investors and up to 35 non-accredited investors. It is also the test for Rule 506(c) “bad actor” provisions and for many other exemptions under the Securities Act.

An issuer selling unregistered securities under Rule 506(b) must verify that accredited investors actually meet the thresholds. Failure to do so—for instance, accepting an investor’s self-certification of accreditation without any corroboration—can result in the offering being deemed non-exempt, exposing the issuer to SEC enforcement and civil liability for non-registered sales.

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