SEC Rule 501: Income, Net Worth, and License Tests

To qualify as an accredited investor under SEC Rule 501, an individual must meet one of three tests: earn more than $200,000 per year on your own (or $300,000 jointly with a spouse or spousal equivalent) for the past two years with the same expected this year, hold a net worth above $1 million excluding your primary residence, or hold an active Series 7, 65, or 82 license. Entities generally qualify by holding more than $5 million in assets or by being a regulated financial institution. Below is how each path works, what counts and what doesn’t, and how an issuer will actually check.

The Income Test

You meet the income test if you earned more than $200,000 in each of the two most recent calendar years and reasonably expect to hit the same figure this year. Qualifying jointly with a spouse or spousal equivalent raises the threshold to $300,000 over the same lookback.¹

Rule 501 says “income,” not “earned income.” That distinction matters. The threshold captures everything on your return: wages, bonuses, K-1 business profits, capital gains, interest, dividends, and rental income. A landlord with $60,000 in salary and $150,000 in rental income and capital gains counts all of it toward the $200,000 mark.

The SEC defines a spousal equivalent as a cohabitant in a relationship generally equivalent to a marriage.¹ Unmarried partners who live together and share finances can pool income under the $300,000 joint test.

The forward-looking piece is a good-faith projection based on current employment and earnings. You don’t need certainty. But if you already know a major income stream is ending, claiming a reasonable expectation to clear the threshold is a stretch you may regret.

The Net Worth Test

You also qualify if your individual or joint net worth exceeds $1 million at the time of the investment. Joint calculations combine all assets and liabilities between you and your spouse or spousal equivalent; the accounts don’t have to be titled jointly.¹

The main wrinkle is your primary residence. Its value is stripped from the asset side entirely, and mortgage debt gets special handling.

How Mortgage Debt Is Handled

If your mortgage balance is at or below the home’s current fair market value, neither the home nor the mortgage counts. If the mortgage exceeds the home’s fair market value, the amount you’re underwater counts as a liability that reduces net worth.²

The 60-Day Anti-Manipulation Rule

The SEC also targets a specific move. If your mortgage balance goes up in the 60 days before you buy the securities, the amount of that increase counts as a liability even though it’s secured by the home. The only exception is debt taken on to actually purchase the residence. This blocks the tactic of pulling cash out through a HELOC right before an investment to shrink other visible debts.²

Everything else counts. Brokerage and retirement accounts, rental properties, vehicles, and business interests are assets. All debts other than properly excluded mortgage debt are liabilities. Run the math honestly; overstating net worth creates exposure for you and compliance problems for the issuer.

Qualifying Through a Professional License

Since 2020, you can qualify based on what you know rather than what you earn or own. An active Series 7 (General Securities Representative), Series 65 (Investment Adviser Representative), or Series 82 (Private Securities Offerings Representative) license qualifies you automatically. Those are the only three certifications the SEC has designated, though it has reserved the ability to add more by order.³

A separate path covers “knowledgeable employees” of private funds. If you’re an executive officer, director, trustee, general partner, or advisory board member of a fund, or serve in a similar capacity, you qualify as accredited when investing in that specific fund.⁴ The qualification is fund-specific and does not follow you to unrelated offerings.

How Entities Qualify

Entities face their own tests, and the category the organization falls into determines which test applies.

Regulated Financial Institutions

Banks, registered broker-dealers, registered investment advisers (including state-registered and exempt reporting advisers), insurance companies, registered investment companies, business development companies, Small Business Investment Companies, and Rural Business Investment Companies qualify regardless of asset size.⁵

The $5 Million Asset Threshold

Corporations, LLCs, partnerships, 501(c)(3) nonprofits, and similar business trusts qualify if they hold more than $5 million in total assets and were not created specifically to invest in the offering at issue.¹ The “not formed for the specific purpose” language stops someone from pooling money from non-accredited friends into a fresh LLC to clear the bar.

ERISA employee benefit plans also qualify at $5 million in total assets, or at any asset level if the investment decision is made by a qualified fiduciary such as a bank, insurance company, or registered investment adviser. Self-directed plans qualify only if every participant making investment decisions is individually accredited. State and local government employee benefit plans follow the same $5 million test.⁵

Trusts

Trusts face a two-part test. The trust must hold more than $5 million in assets, and the investment decision must be directed by a person with sufficient financial knowledge and experience to evaluate the risks. Clearing the asset bar alone is not enough.¹

Family Offices

A family office qualifies if it manages more than $5 million in assets, was not formed specifically to buy the securities in question, and has the investment directed by someone financially sophisticated enough to evaluate the deal. A “family client” of a qualifying family office, meaning a family member whose wealth is managed by the office, also qualifies as accredited for that investment.¹

The Look-Through Route

Any entity can qualify if every equity owner is individually an accredited investor. This matters most for small LLCs or partnerships where all the partners meet the individual income or net worth tests.¹

How the Issuer Will Actually Check

Meeting the definition on paper is only half the story. The issuer has to be satisfied you qualify, and what that takes depends on which exemption is being used.

Rule 506(b): Self-Certification

In a 506(b) offering, which cannot be publicly advertised, the issuer needs a “reasonable belief” you’re accredited. In practice you’ll fill out a questionnaire or check a box on a subscription agreement. The issuer can rely on your representation unless something in the file contradicts it.⁶ Rule 506(b) can technically include up to 35 non-accredited but financially sophisticated buyers, though most issuers avoid that because it triggers heavier disclosure obligations.

Rule 506(c): Mandatory Verification

When an issuer advertises broadly under 506(c), every purchaser must be accredited and the issuer must take “reasonable steps” to independently confirm it. The SEC gives four safe-harbor methods for individuals, though other reasonable approaches are allowed.⁷

Income verification. The issuer reviews IRS documents such as W-2s, 1099s, K-1s, or your Form 1040 for the two most recent years, plus a written statement from you that you reasonably expect to meet the threshold this year.
Net worth verification. The issuer reviews bank and brokerage statements and similar documents showing assets, together with a credit report showing liabilities, all dated within the prior three months, and confirms the primary residence has been properly excluded.
Third-party confirmation. A registered broker-dealer, registered investment adviser, licensed attorney, or CPA provides a written letter confirming they have taken reasonable steps to verify your status within the prior three months.
Prior investment re-certification. If you previously invested in the same issuer’s 506(b) offering as an accredited investor and are re-certifying, the earlier verification can carry forward.

The third-party letter route has become the most common because it shifts the verification burden to a professional. Fees from attorneys and CPAs generally run a few hundred dollars, though an existing professional relationship may reduce or waive the cost. Online verification platforms handle the same process for less.

Will the Thresholds Change

Not soon, and not automatically. The $200,000 income threshold has been in place since 1982, and the $1 million net worth threshold was last meaningfully adjusted in 2011 when the primary residence was excluded. The Dodd-Frank Act requires the SEC to review the definition every four years, with reviews completed in 2015, 2019, and 2023.⁸ The 2015 review recommended indexing the thresholds for inflation, but no indexing has been adopted. As of early 2026 the dollar figures remain unchanged, with the next required review due around 2027. Qualify against the current numbers, not the ones you assume the SEC will get around to updating.