How do I know if I’m an accredited investor?

The income test

The income test looks back two years and forward one. You need income above the cutoff in each of the past two years, and a reasonable expectation of reaching it again this year.

A new salary above the cutoff doesn’t count on its own, because the test looks back two years. The joint test applies to a spouse or a spousal equivalent, which the rules define as a partner you live with in a relationship generally like a marriage. It doesn’t apply to any two people who want to combine income.

Illustration: someone who earned $220,000 of qualifying income in each of the past two years, and expects about the same this year, may meet the income test on her own. Someone earning that much for the first time this year would need to qualify another way or wait.

Check using your tax records and the definition of income the rules use. The salary in an offer letter, a one-time award, and an estimate of future pay are different things. If your pay includes stock or stock options from your employer, or other complicated items, get help applying the test instead of relying on an offer letter.

How to figure your net worth for this test

Net worth for this test is what you own minus what you owe, with one big exception: your primary home. Its value doesn’t count, and neither does the mortgage on it, as long as you don’t owe more than the home is worth. The SEC’s accredited-investor bulletin explains the details.

So the net worth you’d figure on your own can differ from the number that counts for this test.

Illustration: suppose someone has $1.2 million in assets that count and $150,000 in debts that count under these rules. The difference is $1.05 million, which may meet the test. A net worth of $1,000,000 wouldn’t, because the rule requires more than $1 million.

You can also count net worth jointly with a spouse or spousal equivalent. Before relying on your math, check what proof the fund will ask for.

Licenses and other ways to qualify

Holding a Series 7, Series 65, or Series 82 license in good standing also qualifies you. These are securities industry licenses. Passing the exam isn’t enough on its own. You need to hold the license in good standing.

A few other groups qualify through their jobs or a family office. The SEC’s accredited-investor page lists them.

Trusts and companies have their own tests. Being accredited yourself doesn’t automatically mean every trust or company you control is too.

How a fund checks whether you qualify

How a fund checks depends on the SEC rule it raises money under. Funds that don’t advertise publicly use Rule 506(b) and often rely on your written answers in the subscription documents. Funds that advertise use Rule 506(c) and must verify that you qualify.

To verify, a fund may ask for tax forms, recent account statements, or a letter from your CPA, attorney, or registered investment adviser.

Ask the fund which documents or letters it accepts, how recent they must be, and how to send them securely. Qualifying for one fund doesn’t settle it for the next one. Keep a record of which test you think you meet and what you still need to confirm.

Signing up for the Aligned Capital Program doesn’t require accredited investor status, as the idea is to learn about venture capital and investing in a fund as preparation for becoming accredited in the future.

Other requirements a fund may have

Some funds also require qualified purchaser status, a higher bar. For an individual, that generally means at least $5 million in investments (SEC). Confirm which requirements apply to the specific fund.

A fund can also set its own minimum and other conditions for who can join. Find out which ones apply to the specific fund before you spend time on the paperwork.

Being accredited only answers whether you’re allowed to invest. It doesn’t make a fund good, show that the manager is credible, or show that you can comfortably afford the commitment. Once you know you qualify, check your own readiness and consider joining the Aligned Capital Program.