Quick Answer
The accredited investor definition gates the private Reg D safe harbor, the verified-AI Reg D safe harbor, the accredited-only $5M statutory exemption, and (through overlap with the Qualified Institutional Buyer concept) institutional resale safe harbors. Individuals qualify via
Quick Answer: The accredited investor definition gates the private Reg D safe harbor, the verified-AI Reg D safe harbor, the accredited-only $5M statutory exemption, and (through overlap with the Qualified Institutional Buyer concept) institutional resale safe harbors. Individuals qualify via $1M net worth (excluding primary residence), $200K/$300K income, or Series 7/65/82 license. Entities qualify via $5M assets, institutional status, or family-office status.
M net worth (excluding primary residence), $200K/$300K income, or Series 7/65/82 license. Entities qualify via $5M assets, institutional status, or family-office status.The accredited investor definition is the single most-tested concept in Reg D. Bankers must know every category cold because each qualifying path drives a different disclosure and verification consequence.
Individual Accredited Investor Categories
An individual qualifies as accredited if they meet any one of the following.
| Path | Threshold |
|---|---|
| Net worth | Over $1 million, individually or with spouse or spousal equivalent, excluding the value of the primary residence |
| Income | $200,000 in each of the two most recent years (or $300,000 joint with spouse), with reasonable expectation of the same income level in the current year |
| Professional license | Holders of Series 7, Series 65, or Series 82 licenses in good standing |
| Knowledgeable employees | Knowledgeable employees of a private fund (with respect to investments in that fund), per Investment Company Act knowledgeable-employee rules |
Net Worth: The Primary-Residence Exclusion
Since the Dodd-Frank Act of 2010, the $1 million net-worth threshold excludes the value of the primary residence.
- A retiree with a $2 million paid-off house and $500,000 in liquid net worth is NOT accredited under the net-worth path.
- The exclusion applies to both the asset value of the residence AND any mortgage debt secured by it (subject to specific rules about underwater mortgages).
- The exclusion does NOT apply to vacation homes, investment properties, or rental properties.
Income: Two-Year Look-Back Plus Reasonable Expectation
- Income must hit the threshold for each of the two most recent years, not the average.
- The investor must have a reasonable expectation of meeting the same level in the current year.
- "Income" for this test is generally pre-tax income reported for federal income-tax purposes.
Exam Tip: Gotchas
- The $1M net-worth threshold EXCLUDES the value of the primary residence (since Dodd-Frank, 2010). A retiree with a $2M paid-off house and $500K in liquid net worth is NOT accredited under the net-worth path. They might still qualify via income or a professional license.
- The income test is a 2-year look-back, not an average. An investor with one $400K year and one $150K year does NOT meet the $200K individual income threshold.
- The professional-license path does NOT require active industry employment. A Series 65-holding investment-adviser principal who left the industry can still qualify for their personal investments as accredited, as long as the license remains in good standing.
Entity Accredited Investor Categories
| Path | Threshold |
|---|---|
| Institutional | Banks, savings institutions, broker-dealers, registered investment advisers, insurance companies, registered investment companies, business development companies (BDCs), Small Business Investment Companies (SBICs), Rural Business Investment Companies (RBICs) |
| Entity with assets over $5M | Corporations, partnerships, limited liability companies (LLCs, expressly recognized), trusts; not formed for the specific purpose of acquiring the securities |
| Family offices | At least $5 million in assets under management; not formed for the specific purpose of acquiring the securities; investment directed by a person with knowledge and experience in financial and business matters |
| Family clients | Family clients of a qualifying family office |
| All-accredited entity | An entity in which all equity owners are themselves accredited investors |
| Insider | Directors, executive officers, or general partners of the issuer (or of the general partner of the issuer) |
Anti-Abuse Rules
- Entities cannot be formed for the specific purpose of acquiring the securities. The exam tests this anti-abuse rule whenever a fact pattern describes a newly created entity buying into a Reg D offering.
- Trusts must have at least $5 million in assets, NOT have been formed for the specific purpose of acquiring the securities, AND have their investment directed by a sophisticated person.
The 2020 Expansion: What Changed
The accredited investor definition was substantially expanded effective December 2020. The expansion added knowledge-and-license paths and codified family-office practice.
- Added Series 7, Series 65, and Series 82 license holders as accredited individuals
- Added knowledgeable employees of private funds (for investments in that fund)
- Added family offices with at least $5M assets under management (AUM) and family clients
- Added LLCs over $5M assets (codified what was already common practice)
- Recognized "spousal equivalent" cohabitants for joint-net-worth and joint-income calculations
Exam Tip: Gotchas
- Anti-abuse rule: entities formed specifically to acquire the securities are NOT accredited. This blocks "club deal" entities pooled together solely to clear the $5M threshold. The entity must have an independent purpose.
- Trusts have a triple test: $5M assets AND not formed for the specific purpose AND sophisticated investment direction. Missing any one prong fails the entity-trust path.
- Insiders of the issuer are AUTOMATICALLY accredited regardless of personal wealth. A first-year director with $50K to her name is accredited for purposes of buying into the issuer's Reg D offering.