Nothing bars you from taking a distribution from your IRA and then giving the money to your granddaughter. However, if you’re withdrawing the funds from a traditional IRA (and you never made nondeductible contributions to it), you’re going to be fully taxed on the distribution. However, even if you’re under age 59½, you aren’t subject to a 10% early distribution penalty as long as your granddaughter uses the funds for qualified higher education expenses.
Dividends received after 2002 and before January 1, 2011, that are taxed at the long-term capital gain rate.