Under the ruling of the U.S. Securities and Exchange Commission, to become an accredited investor you must meet certain criteria. The exact criteria, as outlined by the SEC, means that individual investors must have a net worth of at least one million dollars.
This particular required net worth for an individual is well known in the investing world. However, there is more to becoming an accredited investor than this one gauge of the individual’s financial threshold.
Accredited Investors According to the SEC
According to the criteria delineated on the sec.gov website, in order for a person to become an accredited investor, as previously stated, he or she must have an individual net worth of at least $1 million. The $1 million stipulation can also be a joint net worth with the individual’s spouse, in order to meet the level for becoming an accredited investor.
On the other hand, if the person in question had an income of at least $200,000 for each of the two previous years, he or she could also qualify to become an accredited investor, even without the aforementioned $1 million net worth. Alternately, this could be a joint income between the person and his or her spouse, as long as it has been over $300,000 in the two previous years.
Finally, a singular individual who is in the process of becoming an accredited investor may possess a trust valued at $5 million at the very least, even without the net worth or income mentioned above. What it all boils down to is that, essentially, becoming an accredited investor relies on meeting a specific financial threshold.
After the Dodd-Frank Redefinition
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama. Prior to the passing of Section 413(a) of this act, a person could count the value of his or her primary location of residence toward his or her total net worth in order to become an accredited investor.
After the act was passed, all the of the SEC’s criteria for becoming an accredited investor remained the same. However, one crucial fact has changed: after 2010, in any of the above cases, the $1 million threshold must exclude the value of the primary residence of the person in question. According to the ruling in 2010, the definition of an accredited investor now renders some individuals or married couples who were once eligible to meet the criteria, ineligible.