Can the same expenses be used for both the exception to the penalty for early withdrawal from an IRA and the education credits? I think not, but I just want to make sure. Not a lot of dollars on this return, but I've just searched all of my forums and can't find an answer.
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Yes, they can. That's because the penalty is considered a separate category from the income tax. So while any particular educational dollar can only be used for one particular income tax benefit, the same dollar can also be used for the benefit against IRA early withdrawal penalties.
Look at Pub. 970, and in particular, compare the rules for computing the penalty exemption for early IRA withdrawals with the rules for tax free amount of educational savings bonds. You'll see that the latter mentions the other income tax credits but the former doesn't.
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