Author Topic: Do insurance earnings count in calculating income for Accredited Investor status  (Read 4365 times)

Mister Fancypants

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When calculating income to be qualified as an Accredited Investor, do insurance earning like LTD and SS count as income?

If so do you count them as is or would you gross them up since they are considered net earnings based on a former gross pay and if the pay was still being earning it would be higher and the calculation would be different.

Thanks,
-Jay

arebelspy

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No.  It is earned income or net worth.  Those are not examples of earned income.
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Mister Fancypants

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So if you are considered Accredited one year based on both your earnings plus your spouses earnings, but in subsequent years your spouses earnings are replaced by insurance payments but you still bring home the same amount of money in total you lose the status?

Something about that just doesn't sit right with me...

footenote

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Yes - If you don't qualify on assets and you no longer qualify on earned income, you are no longer an accredited investor.

Another Reader

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Hmmmmm....the requirement of the income being earned income is not in the SEC definition itself. 

7.a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year 

Where does that requirement actually appear?  What about folks that gave up working for a living but derive that range of income from their investments?  I guess the SEC figures if you have that much unearned income your net worth exceeds $1MM.

Mister Fancypants

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@Another Reader... I never thought it was earned income.

My problem is I am just shy of $200k, my wife used make enough to put us over $300k no problem, however she is no longer working and her LTD is 60% of her gross because it is tax free, so our current total income my pay plus her insurance earning put us under then $300k mark, but if you gross up her insurance we are back to over $300k. Net pay works out higher as my tax rate is actually now a lower top bracket.

We are only liquid $750k, our primary residence puts us over the $1m, but that can't be used for status, for the previous 2 years we have been considered Accredited but not anymore...


arebelspy

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After digging more, this is something I would consult a lawyer versed in securities before I proceeded, if I were the company marketing to accredited investors and verifying them as such, and you presented yourself to me.

For you, how important is it? What are the penalties of saying you are accredited if you are not?

(I know the penalties on the other side, for the company looking for accredited investors and not verifying it.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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Another Reader

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Arebelspy:

Where does the "earned" part of the income arise?  I haven't seen that before. 

tomsang

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I have been involved in a few of these and if I recall there is no audit of your net worth or income. If you can sign the form, because you have tax effected the LTD then I think you would be fine. The company may ask you for proof of income or NW and reject your form, but I believe it is on them.

arebelspy

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Arebelspy:

Where does the "earned" part of the income arise?  I haven't seen that before.

/shrug.  What I was always taught.  Googling it, a few sites have that definition but the SEC is just what you quoted.  Again, if I were the investor, I likely wouldn't care, if I were the company seeking accredited investors, I'd check with a lawyer.  Then again, I'm pretty paranoid about SEC stuff.  They scare me more than most legal things.

I have been involved in a few of these and if I recall there is no audit of your net worth or income. If you can sign the form, because you have tax effected the LTD then I think you would be fine. The company may ask you for proof of income or NW and reject your form, but I believe it is on them.

Agreed.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.