If you withdraw from your 401k earlier to pay school tuition, does that count as a tax deduction at all? Or am I still penalized the full amount for 401k?

While IRAs offer an exception to the early withdrawal penalty for college expenses, early 401k withdrawals are always subject to a 10% penalty—no exceptions. Traditional 401k withdrawals are reported as income in the year that you make the withdrawal, increasing your Adjusted Gross Income (AGI).