You might not have requested the distribution ... but you chose to use the money instead of rolling it into an IRA. That means it is taxable and subject to penalty.

So only IRA's have the tax penality excemption for Education. I know that there are both tax penality exemptions for IRA 's other qualified plans. I only saw the education excemption under the IRA and not 401k's. AM I safe to say that under the plan I have there is no excemption that applies to me? Does unemployment count or is that not related?

IRAs and 401(k) plans have some different exceptions to the 10% penalty -- there are more available for IRAs (as you've noticed). Education expenses are not a valid exception for 401(k) plans, neither is unemployment (unless you're over age 55).

I am confused. An accountant told me you can exempt education. So I guess I am stuck on the penality? I am not sure who to believe.