What Is an Accredited Investor? The SEC Tests, Line by Line

Michael Whitman · Trading since 2017, full-time since 2020 · Published 2026-09-26

An accredited investor is a person or entity that passes one of the tests in the SEC’s Rule 501(a), and that status is what lets a company sell to them without registering the offering. The rule text read on 26 Sep 2026 still uses the dollar lines set in 1982 and 1988, and SEC staff estimate that 18.5% of US households cleared one of them in 2022, up from 1.8% in 1983.

How it works

The status exists because of what a private offering skips. Every sale of securities must be registered with the SEC or fit an exemption, and registration is the route that forces full disclosure to buyers. Many exemptions, above all Rule 506 of Regulation D, limit who may buy or restrict sales to anyone outside this group. The logic, in the words of the 2023 staff review, is that these buyers can “fend for themselves” without registration’s protections.

The rule counts a belief, not only a fact. Rule 501(a) covers anyone who fits a category, or whom the issuer reasonably believes fits one, at the time of the sale. That is why the checking step below matters as much as the tests.

A person can qualify four main ways under 17 CFR 230.501(a):

1. Net worth over $1,000,000, alone or jointly with a spouse or spousal equivalent. The main home is not an asset, and debt secured by it, up to its value, is not a liability, with two exceptions covered below.
2. Income over $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent over $300,000 in each of those years, plus a reasonable expectation of the same level this year.
3. A credential the SEC has designated. The staff review names three: the Series 7 general securities license, the Series 65 investment adviser representative license and the Series 82 private securities offerings license, each held in good standing.
4. A role inside the seller: a director, executive officer or general partner of the issuer or of its general partner, or a “knowledgeable employee” of the fund being offered, where that fund relies on section 3(c)(1) or 3(c)(7) of the Investment Company Act.

A family client of a qualifying family office is a fifth, narrower route.

“Spousal equivalent” has a set meaning. The rule defines it as a cohabitant in a relationship generally equivalent to that of a spouse. For joint net worth, the assets need not be held jointly, and the securities need not be bought jointly.

The entity tests

Companies, trusts and funds have their own list in the same paragraph, and most of it turns on a $5,000,000 line rather than on who owns the entity:

• Regulated firms qualify outright: banks, savings and loan associations, registered broker-dealers, SEC- or state-registered investment advisers and exempt reporting advisers, insurers, registered funds, business development companies, and licensed small business and rural business investment companies.
• Corporations, partnerships, LLCs, business trusts and 501(c)(3) charities need total assets over $5,000,000, and cannot have been formed to buy the securities on offer.
• A trust needs assets over $5,000,000, the same not-formed-for-this condition, and a purchase directed by a sophisticated person.
• Any other entity can use an investments test instead of assets: over $5,000,000 of investments, as that word is defined in rule 2a51-1(b), and it cannot have been formed to buy the securities on offer.
• A family office needs over $5,000,000 under management, cannot have been formed for the purchase, and needs an investment directed by someone with enough knowledge and experience to judge its merits and risks.
• An entity whose equity owners are all accredited qualifies whatever its size, and the rule lets you look through layers of ownership to the natural persons at the bottom.

How a company checks your status

The SEC’s page on assessing investors, updated 24 Apr 2026, splits the duty by offering type. In a Rule 506(b) private placement, the company needs a reasonable belief, judged from its relationship with you and what it knows about you. In a Rule 506(c) offering, where general solicitation is allowed, it must take reasonable steps to verify.

The SEC lists methods a 506(c) company may use, though none is required:

• Income: copies of IRS forms that report it, such as a W-2, 1099, Schedule K-1 or Form 1040.
• Net worth: statements dated within the prior three months (bank, brokerage, certificates of deposit, tax assessments) plus a credit report from a nationwide agency, along with your written representation.
• A letter from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a CPA, saying that within the last three months they took reasonable steps and found you accredited.
• A repeat buyer, already verified by that company, can sign a representation at the time of sale that covers five years from the earlier verification, as long as the company knows of nothing to the contrary.

The same SEC page is blunt about the shortcut: checking a box, with nothing else known about your finances, meets neither standard.

A worked example

Take a hypothetical investor, round numbers throughout. The home is worth $600,000 with a $400,000 mortgage. Other assets (brokerage, retirement and bank accounts) total $1,050,000, and car and card debt come to $80,000. Thirty days before the purchase, they draw $50,000 on a home-equity line and leave it in the bank.

• Assets outside the home: $1,050,000 + $50,000 of cash = $1,100,000.
• Liabilities the rule counts: the $80,000 of other debt, plus the $50,000 draw. Home debt that rose in the 60 days before the sale, other than from buying the home, counts as a liability.
• Net worth for the test: $1,100,000 − $80,000 − $50,000 = $970,000. That is $30,000 short of the line.

Without the 60-day clause the same person would show $1,020,000 and pass. Their ordinary net worth, with the house in, is $1,170,000, which shows how far the rule’s figure can sit from the one on a personal balance sheet.

The underwater case runs the other way. If a home is worth $400,000 and the mortgage is $450,000, the $50,000 of debt above the home’s value is counted as a liability.

The income test is year by year. A couple earning $180,000 and $140,000 has joint income of $320,000. If the next year they earn $170,000 and $125,000, that is $295,000. Their two-year average is $307,500, but the rule asks for over $300,000 in each of the two years, so they do not qualify on income, and neither spouse passes $200,000 alone.

The original data

Share of US households over the lines. The SEC staff’s review dated 14 Dec 2023, the third of the reviews the Dodd-Frank Act requires at least every four years, estimates households from the Federal Reserve’s Survey of Consumer Finances. Meeting any financial test: 1.8% of households (1.51 million) in 1983, 3.0% in 1989 and 18.5% (24.3 million) in 2022, a rise of about 10.3 times. By test in 2022, 13.8% cleared the $200,000 income line, 7.5% the $300,000 joint line and 12.5% the $1,000,000 net worth line. The staff say the rise appears to be largely due to the thresholds for natural persons never having been adjusted for inflation.

The same report projects forward with the lines left alone and CPI-U inflation: 31.4% of households by 2032, 49.2% by 2042 and 65.9% by 2052. Those later bars are the staff’s extrapolation from 1983 to 2022 growth rates, not measurements. If each line had been raised with CPI-U from its adoption (1982, or 1988 for the joint line) to 2022, the staff compute $3,037,840 of net worth, $607,568 of individual income and $911,352 of joint income. At those lines, 7.4 million households (5.7%) would have qualified in 2022. The full table is in the households CSV.

The line against prices to August 2026. The same check works on FRED’s seasonally adjusted consumer price index. Its 1982 average is 96.533 and the August 2026 reading is 334.131, so prices are up 246.1%. The $1,000,000 line would need to be about $3,461,000 today to buy what it bought in 1982, and the $200,000 income line about $692,000. Seen the other way, today’s $1,000,000 is worth about $289,000 in 1982 money.

The yearly series is in the thresholds CSV. The joint line is not on that chart, because the rule only added it in 1988; priced from the 1988 average, $300,000 then is about $848,000 now.

Who actually buys. From Form D filings for offerings started in 2009 to 2022, staff estimate about 9.6 million investor participations in Regulation D deals, 99.7% of them accredited, against about 27,900 that were not. These are not unique people, since one investor can appear many times. Of the $19.8 trillion raised under Regulation D in that span, private funds took $17.1 trillion (86%).

When it fails

Wealth stands in for skill, and the fit is loose. The staff review notes the definition has long used income or net worth as a proxy for sophistication. The knowledge measure it cites is a FINRA Investor Education Foundation survey: its highest portfolio group, $250,000 and above, averaged 5.3 correct answers out of 10. That test was not built for this purpose, and the staff say so, but it is the evidence on the page.

The line drifts lower every year it stands still. A fixed dollar test lets in more of the country as prices and pay rise, which is the whole story of the first chart. A 2022 household at the line has far less real cushion than a 1983 household at the same number.

Passing the test does not make an investment suitable. A private offering may come with less disclosure than a registered one, and your money may be tied up for years; the liquidity risk is real whether or not you qualify. Meeting the test answers only who may buy.

Status is judged on the day of sale. A net worth that clears the line only because of borrowing against the home in the last 60 days does not count, and an income that dipped in one of the two years fails. A seller in a 506(c) deal that takes only a checked box has not met the SEC’s standard either.

Related

The best-known buyer of this status is the hedge fund, where the investor test is what defines the product. The rule’s figure starts from the everyday net worth calculation and then removes the home. The reason the lines matter more each year is plain inflation, compounding on a number nobody has changed. A registered IPO is the opposite route: full disclosure, and anyone may buy. For pooled funds that anyone can buy, see mutual funds.

This page is educational, not financial advice. Test every idea on your own charts before risking money.