Legal Question in Wills and Trusts in Massachusetts

The best way is to create a trust and have it indicate how the money is to be spent. You need to find a friend or someone else who would be willing to serve as trustee. The one thing you need to remember is that once the money is put in a trust and not rolled over into another retirement account like an IRA, the trust will pay an income tax on the money. However, there are exceptions for a non-penalty withdrawal from an IRA such as:

IRA plan owners are able to make early withdrawals without penalty for exceptional financial situations such as expenses for higher education, buying a first home, satisfying a debt to the IRS or paying health insurance premiums while unemployed, reports the IRS. They can also initiate penalty-free early withdrawals if they become completely and permanently disabled or have medical bills totaling 10 percent or more of their adjusted gross income. Military reservists called to active duty for 180 days or more can make penalty-free early withdrawals from IRA plans. The penalty is waived if IRA plan owners take early withdrawals as a series of substantially equal periodic payments.

I do not know how old the child is, but if she has any income from working w-2 or 1099 she can open an IRA. Once that is done you can rollover the money from your 401K to her IRA.

I suggest you meet with an attorney and decide what the best course is for you to take.