Posted on 03/11/2019 in Investors

How to Become an Accredited Investor


How to Become an Accredited Investor

The main benefit of being an accredited investor is that you become more attractive to companies looking for funding. The U.S. Securities and Exchange Commission (SEC) doesn’t make private funds and companies register certain investments as long as they’re selling their assets to accredited investors. This means that, as an accredited investor, you can directly invest money into private equity, hedge funds, private placements, venture capital, and equity crowdfunding. Basically, being an accredited investor gives you a lot more investment opportunities than you would have otherwise.

Who qualifies as an accredited investor?

The main thing you need to become an accredited investor is money. According to SEC guidelines, in order to become an accredited investor, an individual needs to have a net worth of at least $1 million (individually or with a spouse, and excluding the value of your primary residence) or an annual income of at least $200,000 (or $300,000 for a married couple). Your annual income must be above the $200,000 or $300,000 mark for the previous two calendar years, with a reasonable expectation that it will continue to stay above that mark. You also need to calculate your income using the same method for all three years (the current year plus the previous two calendar years). 

So, let’s say you as an individual made $250,000 and your spouse didn’t work two years ago. Then last year, your spouse began working and made $150,000 while you only made $150,000. It might seem like you meet the requirements (making at least $200,000 as an individual and $300,000 as a couple). But you wouldn’t qualify for accredited investor status because the calculations are different. You need to meet the thresholds as either an individual or couple for the previous two calendar years, plus the current year. 

As for having a net worth of at least $1 million, you can count vehicles, vacation homes, retirement accounts, and other investments. The only asset you cannot include is your primary residence. (This is new as of 2010 when the Dodd-Frank Act was passed.)

Can I invest without being an accredited investor?

You can invest in certain types of investments, like stocks and bonds, without being accredited. As of 2016, you can also invest in crowdfunding platforms without being accredited. The main reason for having an accreditation standard is that higher risk investments can be detrimental to an individual’s finances. The SEC wants to ensure that anyone investing in equity understands the risk and is financially sound enough to handle it.

How do I register as an accredited investor?

There isn’t a formal process for becoming an accredited investor. You don’t need to pass a test or submit paperwork to earn the status. Companies will do their due diligence to determine whether or not you meet the status of an accredited investor. Expect to submit paperwork showing that you meet the SEC requirements, including: 

  • Credit report

  • Financial statements

  • Financial documents showing your worth

  • Tax returns for at least the last three years

  • W-2 forms and other documents showing your earnings

Bottom line

If you meet the SEC’s requirements for being an accredited investor, then you can invest in companies as an accredited investor. If you don’t, you still have options for investing, such as buying stocks and bonds or through making crowdfunded investments. If you aren’t sure whether or not you qualify, seek advice from a financial adviser or financial attorney who can calculate your net worth to see if you meet the criteria. 


Contact This Member