Under the rules in place in 2012, the beneficiary can choose to spread out the IRA over their lifetime. They must withdraw at least the minimum amount, but can withdraw more if needed. As I understand the rules, the child will be subject to the "Kiddie tax" until they are 24, even if they are not a tax dependent.
While the child is subject to the kiddie tax, it might make sense to take out loans for school, then pay off the loans once the child turns 24. The interest for 3 years might be less than the tax savings, but this would have to be carefully calculated.
Once the child is over age 24, what is the goal? She can leave the money until her own retirement and only take the RMD. If she wants to withdraw more (to invest in other instruments or to spend) she needs to keep an eye on her tax brackets. Withdrawals may be taxed at 12% or less (or even tax-free) depending on her other income, if you keep the amounts low.
But she must take the RMD and pay the tax, there are no tricks to avoid this.
