Accredited investor status is the benchmark for private offerings that rely on exemptions (such as under Regulation D). Only those who qualify may subscribe to securities in many private deals, so issuers and intermediaries must understand and reasonably verify eligibility.
The term “Accredited Investor Test” is sometimes used to refer generically to the set of criteria (income, net worth, credentials) that determine whether the prospective investor meets the SEC accredited investor definition.
Current Eligibility Criteria (2025)
Individuals:
1. Financial Tests (Wealth / Income)
These remain the traditional and most relied-upon pathways to accredited investor status:
• Net Worth Test: An individual (or together with a spouse or equivalent) must have a net worth exceeding $1,000,000 USD, excluding the value of the primary residence.
In computing net worth, one includes all assets and liabilities (other than the primary home).
Home debt: Mortgage or equity loans secured by the primary residence are generally excluded unless the debt was incurred 60 days before the investment (in which case that liability may count against assets declared for verification).
If the home is underwater in debt(mortgage exceeds fair market value), the excess is counted as a liability.
• Income Test:
◦ Individually, an investor must have earned at least $200,000 USD in each of the two most recent years and reasonably expect to maintain that level in the current year.
◦ The threshold is $300,000 USD in each of the prior two years (with similar expectations), jointly with a spouse or spousal equivalent.
Meeting either of the financial tests is sufficient for this path.
2. Professional / Knowledge / Credential-Based Paths
To expand access (without relying purely on wealth or income), the SEC in recent years has added non-financial routes to qualify.
• Certifications, designations, or credentials:
The rule now allows natural persons who hold certain professional licenses or credentials to qualify, even if they do not satisfy the financial tests.
Initially recognized credentials include, for example, certain securities or investment-adviser licenses (e.g. Series 7, Series 65, Series 82).
The SEC retains the ability to designate additional credentials in the future.
- Knowledgeable Employees of Private Funds:
For investing in the fund in which they work, employees deemed “knowledgeable” under the Investment Company Act (e.g. participating in investment decisions for 12+ months) may qualify as accredited investors for that fund. - Registered Advisers / Broker-Dealers / Exempt Reporting Advisers:
SEC- or state-registered investment advisers (and exempt reporting advisers) qualify as accredited investors by virtue of their status, even without meeting the $5 million USD assets test.
Entities:
Many entities (corporations, partnerships, LLCs, trusts, etc.) may qualify if they have $5 million USD in total assets or investment) or if all the entity’s owners are themselves accredited investors.
Additional entity pathways for entities:
- Certain financial institutions, banks, insurance companies, registered funds, or business development companies
- Revocable Trusts with assets/investments over $5 million USD, not formed solely to invest in the securities offered, if directed by a “sophisticated person” (Irrevocable Trusts most often are required to meet the financial criterion to qualify.
Recent SEC Updates & 2025 Developments
- In March 2025, the SEC staff issued a no-action letter clarifying verification under Rule 506(c). Issuers may rely on minimum investment thresholds (e.g., $200,000 USD for individuals, $1,000,000 USD for entities) as objective evidence of accredited status, combined with a written representation, provided no conflicting facts exist.
- The guidance affirms that the verification methods listed in Rule 506(c) are non-exclusive; issuers may adopt other reasonable verification steps tailored to investor profiles.
- Some relief was given to reduce the administrative burden in verifying back-office documents (tax returns, statements) when justified by the investment size and investor profile.
- Regulatory staff have also signaled that they will no longer routinely demand that certain registered closed-end funds restrict private investment offerings to accredited investors, though strong disclosures remain essential. • Congress has begun discussions to adjust the net worth and income thresholds for inflation every five years, and to further expand credential-based paths.
Practical Considerations for Issuers & Verifiers
- Issuers should adopt a reasonable verification framework, assessing which combination of investor representations, credentials, third-party confirmations, or minimum investment thresholds makes sense for a given offering, consistent with the 2025 SEC clarifications.
- Even when an investor qualifies via a credential or status-based path, issuers must still verify the legitimacy of that credential (e.g. confirming license good standing).
- Confidentiality, data security, and proportionality are important: issuers should avoid overly intrusive requests for sensitive personal financial documents unless justified by the investment size or risk. • Periodic review of evolving rulemaking is essential: further updates may expand or refine the accredited investor definition, especially around inflation adjustments or new pathways.
In summary, by 2025, the Accredited Investor Test has matured beyond pure wealth and income criteria into multiple requirements, now also embracing professional credentials and structural status. While the traditional net worth and income thresholds remain foundational, issuers and compliance professionals must now balance rigor with flexibility—and adopt verification approaches aligned with recent SEC guidance.
