Accredited Investor Status

Are you “Accredited”? Accredited Investor is a term used by the Securities and Exchange Commission (SEC) to describe investors who are financially sophisticated. It is felt they have less need of the protection provided by the regulatory disclosure filings required of publicly traded companies.

High net-worth individuals and entities such as banks, insurance companies, brokers and trusts can qualify as Accredited Investors.

The term has been around since 1982, but became more public when in 2012 (updated in 2017) the Jumpstart our Business Startups Act (JOBS Act) made it easier for small businesses to raise funds without having to comply with the stringent reporting requirements publicly traded companies must comply with. As a result, the addition of Crowdfunding platforms increased the opportunities for Accredited Investors.

Definition of Accredited Investor

Accreditation means you have $1 million in net worth beyond the value of a home or earn $200,000 ($300,000 in joint income) or more annually to qualify as Accredited Investors. An Accredited Investor can buy private placements or unregistered securities.

In August 2020, the Securities and Exchange Commission expanded the pool of sophisticated investors qualified to purchase unregistered securities. This expanded definition now includes people who have professional certifications. Anyone holding Series 7, Series 65 or Series 82 securities licenses would qualify as an accredited investor.  In addition, employees of a private fund who invest in that fund, limited liability companies and family offices with at least $5 million in assets, Indian tribes and spouses of accredited investors. The SEC might add more certifications, designations or credentials in the future.

How to Become an Accredited Investor

The Accredited Investor status is not something you can obtain from a government entity. Therefore, each seller of unregistered securities must ensure your qualifications as an Accredited Investor before allowing you to invest. You may be asked to complete a form and/or to submit financial statements or tax returns. The seller decides whether to accept you for that investment. This process will be repeated every time you want to buy an investment that requires Accredited Investor status.

How does this impact IRA account holders?

Some IRA investments require Accredited Investor status for the IRA account holder to be able to acquire the investment. An IRA cannot be given Accredit Investor status because it is an “account” and not a person.  Therefore, the Account Holder must be accredited themselves for their IRA to be eligible for the investment. The 2020 expanded definition of “Accredited” will permit more IRA funds to be used for these investments.

Please contact uDirect IRA Services at 714-831-1866 or to discuss how to use an IRA to buy assets and build your financial future.