Q: I am 26 and I have been contributing to my Roth IRA since I was 18. Now, I am looking to purchase my first home and was considering taking funds from my Roth IRA. The 5-year rule is confusing to me and I am not sure how this applies to me, given the circumstances. Are the funds in my Roth IRA penalty free, and tax free when withdrawn for the purpose of buying a first home?

A: You can always withdraw your contributions to a Roth IRA tax and penalty free. In your case, the 5-year rule for withdrawing up to $10,000 of earnings tax and penalty free has been satisfied. Because you will use the funds for a first-time home purchase ($10,000 lifetime limit) and you started a Roth IRA more than 5 years ago, the withdrawal of earnings will be tax and penalty free (known as a qualified distribution).