Accredited Investors and Private Securities: What You Need to Know to Qualify

Investing in many categories of alternative investments, such as private equity, venture capital and hedge funds, requires buying private securities that are not registered with the U.S. Securities and Exchange Commission (SEC) and are not traded in public markets. Federal securities law and regulations place restrictions on who can purchase these private securities. Companies and private funds can offer to sell unregistered securities only to investors who qualify as accredited investors. If you are interested in pursuing direct investment opportunities in private companies, investing in portfolios of private companies through a private equity fund or venture capital fund, or investing in hedge funds or managed futures funds, you need to become familiar with the qualifying requirements for accredited investors. 

The Securities Act of 1933 requires that offers and sales of securities be registered with the SEC. For example, when a startup company prepares to sell its stock to the public for the first time in an initial public offering (i.e., “goes public”), it files a registration statement with the SEC, registering its shares. Likewise, companies must register any additional offerings (secondary offerings) of their stock to the public by filing registration statements with the SEC. Registration with the SEC is intended to ensure that investors have full and fair disclosure of important information so they can make informed investment decisions. 

The Securities Act of 1933 contains a number of exemptions from its registration requirements and also allows the SEC to create new exemptions. The most important exemptions are contained in Regulation D, which consists of a set of rules for issuers of securities. The amount of capital raised by companies and private investment funds is substantial. Private securities issuers relying on Regulation D exemptions raise trillions of dollars annually, an amount comparable to or exceeding what is raised in registered public offerings. A centerpiece of Regulation D is the definition of accredited investor. The accredited investor definition is “intended to encompass those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves render the protections of the Securities Act’s registration process unnecessary.”[1] In other words, the purpose of the accredited investor definition is to identify investors who have the ability to understand the unique risks of these often complicated investments and who can bear the economic risk of investing in them. Companies and private funds raising capital through non-registered private offerings, sometimes referred to as private placements, are not required to make the same comprehensive disclosures to accredited investors that issuers of registered, publicly traded securities are required to make to public market investors. 

Accredited Investor Definition 

Accredited investors are defined in Regulation D.[2] Several types of accredited investors are covered, including individuals and certain specifically enumerated entities such as trusts, banks, nonprofit corporations, and business development companies. We will cover the definition as it applies to individual investors, including the trusts commonly used by these individuals. The full text of the accredited investor definition is included as an appendix at the end of this article. 

Under the accredited investor definition, individuals are accredited investors if they meet any of the following criteria: 

• Earned individual income in excess of $200,000 in each of the two most recent years or joint income with their spouse or spousal equivalent in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year.[3] 

• Have individual net worth, or joint net worth with their spouse or spousal equivalent, of $1 million excluding the value of their primary residence.[4] 

• Hold in good standing one of the following professional certifications designated by the SEC: the Series 7 (Licensed General Securities Representative), Series 65 (Licensed Investment Adviser Representative), or Series 82 (Licensed Private Securities Offerings Representative) license. The SEC may designate additional qualifying certifications in the future. This category was added in 2020 to recognize that financial sophistication can be demonstrated through professional credentials, not only through income or net worth. 

Additionally, “knowledgeable employees” of a private fund — generally, executive officers, directors, trustees, general partners, advisory board members, or employees who participate in the fund’s investment activities — qualify as accredited investors for purposes of investing in that private fund. 

For the income test, you must meet the same test for the entire three-year period. For example, you must have individual income of $200,000 or more in each of the last two years, or you must have joint income with your spouse or spousal equivalent of $300,000 or more in each of those years and a reasonable expectation of reaching the same level in the current year. A spousal equivalent is defined as a cohabitant occupying a relationship generally equivalent to that of a spouse.  

The term income is not defined. SEC staff has provided some guidance on what can and cannot be included in income. For example, the gross revenue of a sole proprietorship is not considered income. Only net income after deducting expenses from gross income is considered income. Income does include contributions to a profit-sharing or pension plan as long as the participant is fully vested in those contributions. [5] Unrealized capital gain is not included in income.[6] 

For the net worth test, the equity in your primary residence is not included in your net worth. The value of your primary residence cannot be included as an asset, and any loan on your primary residence, up to the value of the property, also is not included in net worth. However, the value of any debt secured by your primary residence in excess of its estimated fair market value (i.e., negative home equity) is included as a liability in your net worth.[7] 

One important point to note: There is a 60-day look-back period that requires that any debt secured by your primary residence incurred within 60 days of purchasing securities is included as a liability in your net worth. The intent of this rule is to prevent investors from artificially inflating their net worth by borrowing against their home equity (e.g., by accessing a home equity line of credit) and converting their home equity into cash or other assets that would be included in the net worth calculation. 

Net worth is defined simply as assets minus liabilities. SEC staff has provided some guidance on what can and cannot be included in net worth. For example, the value of vested employee stock options is included in net worth.[8] You are allowed to aggregate the property that you and your spouse or spousal equivalent (up to the amount each of you own) even if the property is not held jointly.[9] And you are not required to purchase securities jointly with your spouse or spousal equivalent to qualify as an accredited investor under the joint net worth test. 

Trusts as Accredited Investors 

Individual investors often hold their investment accounts and other assets in a revocable or irrevocable trust for estate planning purposes. 

Revocable trusts meet the definition of accredited investor as long as all of the equity owners of the trust are themselves accredited investors.[10] The SEC staff clarified that “where the grantors of a revocable trust are accredited investors” under the definition above “and the trust may be amended or revoked at any time by the grantors, the trust as a legal entity would be deemed not to exist, and the trust would be deemed accredited, because the grantors would be deemed the equity owners of the trust’s assets.”[11] What this means is that if you created your revocable trust and you have the power to amend or revoke it at any time, and you are an accredited investor under the two-part income or net worth test above, then your revocable trust is also an accredited investor and your trust can invest in non-registered securities subject to issuer requirements and verification procedures such as those offered by private companies, private equity funds, venture capital funds, hedge funds, and managed futures funds. 

Revocable trusts also meet the definition of accredited investor if the more general rules that apply to trusts also apply.[12] However, the asset minimum for trusts is considerably higher than the net worth requirement for individuals, and many potential investors will qualify as accredited investors under the revocable trust rules and not under the general trust rules, which would apply, for example, to an irrevocable trust. 

For an irrevocable trust, the general trust rules apply. A trust meets the definition of accredited investor if it has total assets in excess of $5 million, was not formed for the specific purpose of investing in the securities being considered for purchase and whose purchase is being directed by a sophisticated person.[13] A sophisticated investor is someone who either alone or with their financial advisor has enough knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment.[14] 

A trust also qualifies as an accredited investor if the trustee or co-trustee is a bank, insurance company, registered investment company, business development company, or small business investment company.[15] 

Similar to revocable trusts, an irrevocable trust might qualify as an accredited investor if all of the grantors are accredited investors and each grantor is considered an equity owner due to the specific features of the trust.[16] The rules for determining if all of the grantors of an irrevocable trust are equity owners are complex and beyond the scope of this article.[17] 

If you have questions about whether you or your trust meets the definition of accredited investor, a good place to start is the company or private fund offering securities you are considering purchasing. Companies and private funds have staff whose responsibilities include helping to ensure that investors in their securities are qualified to invest under the SEC’s rules. Their compliance teams typically include securities attorneys who can help analyze the facts and circumstances of your particular situation. 

It is also worth noting that in 2020, the SEC expanded the types of entities that can qualify as accredited investors beyond trusts. The updated definition now includes limited liability companies with total assets in excess of $5 million (not formed for the specific purpose of acquiring the securities offered), family offices with at least $5 million in assets under management, and family clients of qualifying family offices. These additions reflect the growing variety of structures through which individuals hold and invest their wealth. 

Recent and Proposed Changes to Accredited Investor Definition 

The SEC is required to periodically review its definition of accredited investor for individuals. In August 2020, the SEC adopted significant amendments expanding the definition to include professional certification holders (Series 7, 65 and 82 license holders), knowledgeable employees of private funds, and additional entity categories — implementing several recommendations that had been under consideration since 2015. The income and net worth thresholds themselves, however, were not adjusted. 

Further expansion remains an active area of legislative and regulatory interest. In 2025, the U.S. House of Representatives passed two bills proposing additional changes: the Fair Investment Opportunities for Professional Experts Act (expanding qualifying education and job experience categories) and the Equal Opportunity for All Investors Act (directing the SEC to create an examination that individuals could take to qualify as accredited investors regardless of income or net worth). As of early 2026, both bills have been referred to the Senate. Additionally, there is ongoing discussion about whether the income and net worth thresholds, which have not been adjusted since the 1980s, should be indexed to inflation. 

Savant Wealth Management provides holistic wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others as a fiduciary, acting in clients’ best interests. Private investments involve significant risks, may be illiquid, and are not appropriate for all investors. Accredited investor status alone does not determine whether any private investment is suitable or recommended. If you’d like to explore how we can help you build and protect your wealth, schedule a complimentary consultation. 

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment or tax advice from Savant. Please consult your investment or tax professional regarding your unique situation. 

Appendix 

For the full current text of the accredited investor definition, see 17 CFR 230.501 at ecfr.gov.  

[1] U.S. Securities and Exchange Commission, Report on the Review of the Definition of “Accredited Investor” (December 18, 2015) 1. 

[2] 17 CFR 230.501(a). 

[3] 17 CFR 230.501(a)(6). 

[4] 17 CFR 230.501(a)(5). 

[5] Securities and Exchange Commission, Securities Act Rules Compliance and Disclosure Interpretation (CD&I) 255.16. 

[6] CD&I 255.17. 

[7] 17 CFR 230.501(a)(5)(i). 

[8] CD&I 255.14. 

[9] CD&I 255.11. 

[10] 17 CFR 230.501(a)(8). 

[11] CD&I 255.21. 

[12] 17 CFR 230.501(a)(7). 

[13] 17 CFR 230.501(a)(7). 

[14] 17 CFR 230.506(b)(2)(ii). 

[15] 17 CFR 230.501(a)(1). 

[16] 17 CFR 230.501(a)(8). 

[17] CD&I 255.24.