The penalty waiver is tricky and very much a matter of timing. The IRA distribution must be taken in the year the education expenses are paid, whether in cash, by credit card or by a student loan. If the taxpayer waits until the loan payments are due it is too late if the actual expenses were paid to the provider in a prior year. While there might be new expenses in the current year of the distribution, once the education is complete and all that is left is student loans, it is too late to take an IRA distribution without penalty just to make the loan payments. This would also be double dipping because the expense payment itself qualified so an exception for repayment of a loan used for those same expenses would be a duplication.

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