Retirement savings often represent the largest pool of investable capital an individual holds, yet they are also the most frequently misunderstood component of the accredited investor analysis. Issuers conducting verification under Rule 506(c) need a clear framework for how these balances are treated.
Retirement assets count toward net worth
Under Rule 501(a)(5), an individual qualifies if net worth exceeds $1 million, excluding the value of the primary residence and netting related mortgage debt. The rule contains no carve out for retirement assets. Vested balances in a 401(k), 403(b), traditional or Roth IRA, SEP, SIMPLE, or self-directed IRA are therefore includable at fair market value.
Two points regularly cause confusion. First, no discount is required for future income taxes or early withdrawal penalties. The regulation measures assets, not liquidation proceeds. Second, illiquidity is irrelevant to the calculation. An asset the investor cannot access until age 59½ still counts, even though it may say little about the investor’s practical ability to absorb a loss.
Unvested employer contributions are a different matter. Because the participant has no enforceable claim to them, the prudent approach is to include only the vested portion. Defined benefit pensions generally do not translate into a countable asset unless a lump sum value is determinable and documented.
Self-directed IRAs and entity questions
Self-directed IRAs introduce a threshold question: who is the purchaser? When the IRA itself subscribes, the account is the record holder, but accreditation is normally assessed by looking through to the individual account holder, who must independently satisfy the income or net worth test. Issuers should confirm that the subscription documents, custodian paperwork, and verification file all identify the same qualifying person, and that the custodian has authorized the investment.
Income test interactions
Contributions to a retirement plan do not reduce income for these purposes, since the test looks to gross income. Taxable distributions from an IRA or 401(k), however, do appear as income. A large one time distribution can create the appearance of a qualifying year that is unlikely to recur, so issuers relying on the income test should confirm the reasonable expectation of comparable income in the current year.
Practical verification guidance
Reasonable steps should be documented, consistent, and privacy conscious:
- Obtain custodian or plan statements dated within roughly three months of the subscription, with account numbers redacted.
- Pair asset documentation with a consumer credit report or a signed liabilities schedule so net worth is calculated, not assumed.
- Ensure all statements cover a comparable period and that jointly claimed assets are supported for both spouses or spousal equivalents.
- Where documentation is fragmented across multiple custodians, consider a written confirmation from a registered broker dealer, SEC registered investment adviser, licensed attorney, or certified public accountant.
Many issuers delegate this review to an independent verification provider to reduce handling of sensitive financial records and to create a defensible audit trail. Whichever route is chosen, the file should show the reasoning applied to retirement assets, not merely the conclusion reached.
