SEC Adopts New Accredited Investor Definition, and You May Qualify | Schwab - Millennium Trust Company

SEC Adopts New Accredited Investor Definition, and You May Qualify

September 15, 2020
By Millennium Trust

For decades, sophisticated investors who did not meet specific criteria for net worth and income were denied opportunities to participate in private capital markets.

In late August, the Securities and Exchange Commission (SEC) officially modified the accredited investor definition, making it possible for financially savvy investors who may not meet net worth and income metrics to add private capital investments – or alternative investments – to their portfolios.

The new definition for “accredited investor” includes individuals who:

  • Are “knowledgeable employees” of private funds;
  • Have professional certifications, designations, or credentials designated by the SEC Commission and issued by an accredited educational institution (e.g. Series 7, Series 65, and Series 82 licenses qualify); and
  • Qualify as spousal equivalents, opening the option to pool assets for the purpose of qualifying as accredited investors under net worth and income tests.

The new rule also establishes limited liability companies with $5 million in assets, family offices with $5 million in assets under management (and family clients), rural business investment companies, SEC-and state-registered investment advisers and exempt reporting advisers as accredited investors.

Self-directed IRAs for Private Market Investors

Accredited investors may gain advantages by investing in private market assets, or alternative assets, through self-directed traditional or Roth IRAs. The primary advantage is that self-directed IRAs give owners the opportunity to hold alternative investments in tax-advantaged accounts.

Self-directed IRAs give owners:

  • Tax-deferred growth of any earnings in traditional IRAs
  • Tax-free growth of any earnings in Roth IRAs
  • Potential to qualify for annual tax deductions
  • Opportunities to improve portfolio diversification by participating in new market sectors
  • Full control over their accounts

Self-directed IRAs are not for everyone. However, if your goal is to diversify your portfolio by owning non-traditional investments, and you prefer to hold them in a tax-advantaged qualified retirement account, then a self-directed IRA may be the right choice.

Before taking any action, talk with your financial adviser about the opportunities, rules and limitations of self-directed IRAs. You should also research self-directed IRA custodians, like Millennium Trust.

To learn more about alternative investments and self-directed IRAs, visit our Knowledge Center.

The material in this blog is presented for general informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal or tax advice.

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