My wife and I are 27 years old. She is quitting her job to go back to school full-time. What should we do with her 401(k)? It is currently invested in a growth mutual fund. Should I leave it and wait to move it until stock prices rise? If I roll it over to an IRA, can I roll it over into a Roth IRA and if I can, should I?

In general, you're on the right track: Take the 401(k) money and put it into an account your wife will be able to control after she leaves her job, an account that would reap big tax rewards later. However, there are a number of factors to consider:

Does your wife's employer pay any or all of the 401(k) plan's maintenance and management costs? If you roll the account into an IRA, you will have to pay these fees and expenses on your own, which would slow future growth.

Does your wife have more than $5,000 in her account? If not, she doesn't get a choice, she'll have to take the money with her once she leaves, and rolling it into an IRA is the way to go.

Would you or your wife continue to make contributions to the account while she's in school? If so, definitely roll it into an IRA. Even though the market is down, at least you would benefit from dollar-cost averaging. If not, you may be better off leaving it alone, for now. You wouldn't be tempted to tap the funds in a pinch if they're harder to get to.

Will your wife return to work after she completes her degree? If so, you may want to wait and roll the account into her future employer's plan. It's a lot less hassle.

Finally, does your wife's 401(k) plan have good investment choices and is she well diversified? If you don't like the investment options, then take the money and run (to the nearest IRA). Remember, don't just look at the past one or two years' results. To get a more accurate picture of how the funds stack up, compare them to others with similar objectives.

If the funds are doing comparatively well, you may want to leave the account be, but make sure the portfolio is well diversified among several types of stock funds -- big stocks, small stocks, growth stocks, value stocks -- before she leaves the company (see our Long-Term Portfolio for an example mix).

If everything points to moving the money into an IRA, and you can afford to pay the tax bill without raiding the account balance, then a Roth would be the way to go. Your wife will owe taxes on the amount that's converted, which is one benefit of the down market -- the lower the value of her account, the lower her tax bill will be. If she has to withdraw money from the account to pay the taxes, she'll have to pay an extra 10% early-withdrawal penalty on that amount. See our Should I Convert My IRA to a Roth IRA? for an estimate of the tax bite.

To make the switch to a Roth, though, your wife will have to first transfer her 401(k) into a traditional IRA (you can't switch directly into a Roth). Then she can convert the traditional IRA into a Roth if you're married filing jointly and your adjusted gross income is less than $100,000 (the same limits for single filers).

To switch from the 401(k) to a traditional IRA, contact the mutual fund company or brokerage firm where you plan to open the IRA and they'll help you make the transition. You'll want to move the money directly from the 401(k) to the IRA without touching it, so taxes won't be withheld. That fund company or brokerage firm will also walk you though the steps for converting from a traditional to a Roth IRA.

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