If I deposit $2,000 in a Roth IRA account, can I withdraw the entire account in 2 years (contribution plus earnings)without penalty to apply towards a first time home purchase provided the withdrawal amount is less than $10,000?

To escape all taxes and penalties the distibution can not be made prior to the 5 year time frame the Roth must be open before qualified withdrawals can be made. In this case you could withdraw your contributions with no taxes or penalties but the earnings would be subject to taxes and the 10% early withdrawal penalty.

I disagree with James' answer. The earning would be subject to income tax becasue the money was not in the Roth at least five years BUT not the 10% penalty. The rule he was citing relates to getting the earnings tax free in this situation.

Code Section 72(t) applies to avoid the 10% penalty on the earnings if all of the other rules related to a first time home buyer exception are met, such as you or your spouse has not owned a house for two years prior to purchasing the home.

Paul Leslie, EA
http://www.taxesbypaul.com

Paul is correct, 1st time homeowner is an exception to the 10% penalty rule.