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.
For 2007, a high deductible health plan is a health plan with an annual deductible that is not less than $1,100 for self-only coverage or $2,200 for family coverage, and with annual out-of-pocket expenses that do not exceed $5,600 or $11,200, respectively.