Converting a non-deductible IRA to a Roth IRA is straightforward if you have no other IRA assets. The taxable portion is only on the gains since the contributions have already been taxed.
However, it's rarely a good idea if you have other traditional IRAs. Total balances of all your IRAs are used to determine the taxable amount of your Roth IRA conversion.

Here's some info from the IRS that doesn't specifically answer the question but would be interesting if you wanted to get all the after-tax contributions out of the IRA and into a Roth while moving whatever gains are there into another pre-tax plan.
https://irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans
I didn't follow any of the other links on the page but my guess is that you might find specific answers about the tax implications and/or penalties in one of those links.
The tax returns and Form 8606, which is used to report after-tax contributions to the IRS is all you need to prove your basis. I believe, but I'm guessing a little, that brokers or trustees have to report the value of retirement plans to the IRS annually or at least when there's a distribution so the IRS can calculate what portion of the distribution you should be paying tax on.

@LLJB. If at least I can confirm the penalty is only on the gains after cost basis, that'll be good. However, it would be really nice if there is not even that penalty since the IRA was funded with after tax dollars anyways.
I've tried to get this clarified reading Roth IRA conversion rules, but this situation is not addressed anywhere that I can find. Hoping someone can provide some guidance.
Finally, there remains the item of proving your cost basis, whether for Roth IRA conversion right now, or whenever I sell out the IRA. Because I'm thinking even if I let money stay in current IRA when I sell it, I should not have to pay deferred taxes on the entire withdrawal since after all I have a cost basis on which taxes were already paid. I did put this in my tax returns so it shows up I have a cost basis.

Sorry I'm not an expert but I also have after tax dollar in an IRA together with pre-tax money I rolled over from a previous employer's 401k. My understanding is that the after-tax contributions gives me, and your wife, a "basis" in that IRA. Just like when I eventually take distributions and I won't have to pay tax on everything I believe your wife would only pay tax on whatever gains are in the account if she does a Roth conversion.
Based on the research I've done about converting my rollover IRA to a Roth I also don't believe there's any penalty, just whatever tax is due on the gains you covert to the Roth.
Hopefully someone is able to confirm my opinion because I probably wouldn't want to rely on it alone.

Holding a balanced portfolio, comprised of muni-bonds and stocks, probably makes sense for many people.
But, IMO, using the 'wrapper' of a balanced fund to do so, is not the approach I would take. Instead, I would own separate stock & muni-bond vehicles (probably ETFs or CEFs), held in the desired stock/bond allocation. Why? - When stocks (or bonds) drop, you can use the taxability of your account as an asset, rather than a liability -- sell the item which is 'down', harvest the tax loss, then buy a similiar-but-not-identical ETF.
OTOH, the manager of a tax-aware balanced fund doesn't drive his/her decisions on what YOUR cost-basis is.
jmo

I think a problem with this plan occurs when you have little to no losses, but a lot of capital gains and income. This has been the case for me more often than not.

Sorry, IMO lack of courage of your convictions. I still have hope they will sell out of WFC. Trump + Low borrowing + Stock Purchases is behind most of market gains, and especially in financials. It is not due to manager prowess. So let's not say his decision to not sell WFC worked out in the best interest of shareholders. That's not different than saying he knew another stock was going to go up 100% and decided not to overdo idealism and bought that stock.
“People thought socially responsible investors were do-gooders doomed to fail,” HTF is he a do-gooder? Oh of course. Staying in WFC is also helping society.
Dodson doesn’t envision hiring a successor at the Endeavor fund any time soon.
“If you’re wondering about a precedent, I would like to point out that Warren Buffett is still managing Berkshire Hathaway and he is 86 years old,” he wrote in last month’s letter. “I’m only 73, so I have a long way to go.”

WTF? Buffett has enough successors at BH.
Just like so many articles, it is meant to excuse the manager. Finally, no mention of WFC beyond opening shot. Why even bring it up in article? Only to gloss over it?
It is wrong to sleep with your neighbors wife. Doing to the contrary once in a while is not not overdoing morality. WFC should have been sold.
PS - Cannot resist calling out the over-the-top bullshit. "The thin boyinsh looking money manager" WTF?!?!?!?! If he is boyish looking then I'm a fat 3 month old baby.

Ummm ... you might check the article we wrote on the subject in May and June, 2016.
When I checked the premium screener just now for domestic equity with over 25% cash, I got:
Comstock Capital Value Fund; Class A Shares
GAMCO Mathers Fund; Class AAA Shares
Scharf Alpha Opportunity Fund
Probabilities Fund;
Bullfinch Fund Inc: Unrestricted Series
PACE Small/Medium Co Growth Equity Investments;
Pinnacle Value Fund
Frank Value Fund
Weitz Partners III Opportunity Fund
Hussman Strategic Value Fund
Intrepid Disciplined Value Fund
Day Hagan Tactical Dividend Fund
Bread & Butter Fund
Port Street Quality Growth Fund
PACE Small/Medium Co Value Equity Investments;
American Growth Fund Series Two (AMREX)
Cullen Small Cap Value Fund
The list is a bit truncated because some of the Intrepid folks seem to be moving to short-term bonds rather than pure cash. ICMAX, for instance, shows as 16% equity, 18% cash, 64% bonds. That might be a more-common move now.
David

FYI: U.S. equity benchmarks slipped Thursday as investors reconsidered Wednesday’s rally fueled by the Federal Reserve’s rate hike and as volatile oil prices weighed on sentiment.
Regards,
Ted
Bloomberg:
https://www.bloomberg.com/news/articles/2017-03-15/stocks-rally-after-fed-euro-gains-on-dutch-polls-markets-wrap
Reuters;
http://www.reuters.com/article/us-usa-stocks-idUSKBN16N1FE
MarketWatch:
http://www.marketwatch.com/story/us-stock-futures-climb-as-fed-fueled-rally-set-to-continue-2017-03-16/print
IBD:
http://www.investors.com/market-trend/stock-market-today/stocks-reverse-course-tesla-surges-after-capital-raise/
CNBC:
http://www.cnbc.com/2017/03/16/us-stocks-open-higher-attempt-to-extend-post-fed-rally.html
AP:
http://hosted.ap.org/dynamic/stories/F/FINANCIAL_MARKETS_ASOL-?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT
WSJ Markets At A Glance:
http://markets.wsj.com/us
SPDRs Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-tracker
Bloomberg Sector Performance Pie Chart:
https://www.bloomberg.com/markets/sectors
Current Futures: Negative
http://finviz.com/futures.ashx

https://www.sec.gov/Archives/edgar/data/35315/000137949117001676/filing836.htm
497 1 filing836.htm PRIMARY DOCUMENT
Supplement to the
Fidelity® Inflation-Protected Bond Fund
May 28, 2016
Prospectus
Effective after the close of business on March 31, 2017, new positions in the fund may no longer be opened. Existing shareholders may continue to hold their shares and purchase additional shares through the reinvestment of dividend and capital gain distributions.
IFB-17-01
1.774739.115 March 15, 2017
Supplement to the
Fidelity® Inflation-Protected Bond Fund
Class A, Class T, Class B and Class C
May 28, 2016
Prospectus
Effective after close of business on March 24, 2017, Class T will be renamed Class M.
Effective after the close of business on March 31, 2017, new positions in the fund may no longer be opened. Existing shareholders may continue to hold their shares and purchase additional shares through the reinvestment of dividend and capital gain distributions.
AIFB-17-02
1.790682.127 March 15, 2017
Supplement to the
Fidelity® Inflation-Protected Bond Fund
Class I
May 28, 2016
Prospectus
Effective after the close of business on March 31, 2017, new positions in the fund may no longer be opened. Existing shareholders may continue to hold their shares and purchase additional shares through the reinvestment of dividend and capital gain distributions.
AIFBI-17-01
1.790683.120 March 15, 2017

Some snippets of interest ... the rest is comments from investors/analysts about staying diversified and knowing that a 'correction' will come sometime.
< - >
Investors have poured money into stocks through mutual funds and exchange-traded funds in 2017, with global equity funds posting record net inflows in the week ended March 1 based on data going back to 2000, according to fund tracker EPFR Global. Inflows continued the following week, even as the rally slowed. The S&P 500 shed 0.4% in the week ended Friday.
The investors’ positioning suggests burgeoning optimism, with TD Ameritrade clients increasing their net exposure to stocks in February, buying bank shares and popular stocks such as Amazon.com Inc. and sending the retail brokerage’s Investor Movement Index to a fresh high in data going back to 2010. The index tracks investors’ exposure to stocks and bonds to gauge their sentiment.
“People went toe in the water, knee in the water and now many are probably above the waist for the first time,” said JJ Kinahan, chief market strategist at TD Ameritrade.
< - >
That brings individual investors increasingly in line with Wall Street professionals. A February survey of fund managers by Bank of America Merrill Lynch found optimism about the global economy improving while investors were holding above-average levels of cash, leaving room for them to drive stocks still higher. Bullishness among Wall Street newsletter writers reached 63.1%—the highest level since 1987—a week ago in a survey by Investors Intelligence, before falling to 57.7% this past week.
< - >
Not sure "being in line" with Wall street professionals is always a good idea. That usually happens late in the game when retail/dumb money climbs on the bandwagon and helps form that proverbial blow-off top. Institutions trim their holdings and lock in gains while selling to the exuberant and retail investors eager to get in on the action --- but at the top, as usual.

A good mention @Tony The WSJ audio clip I received (subscription service) sounds like the same article you're referencing - but I can't read it online either. It's a 6-8 minute clip laying out the bear case which we're all by now familiar with from various sources.
Summary
- Stocks have increased about 250% from the end of '08 when (according to the article) "nobody" wanted them.
- As always, the mom & pop / momentum crowd come late to the party and drive the "euphoric" stage for an indeterminable number of additional years.
- Serious investors face a tough decision whether to hang on to equities longer hoping to reap the big gains that come in the final "blowoff' stages of a market top or to sell now locking in gains before stocks plummet.
I know. "Same Old" - "Same Old" that we've all been hearing for the past few years. I'm not saying the analysis is correct. And I haven't a clue what anyone should do. Just wanted to help clarify the focus of the WSJ piece you appear to be referencing. Thanks again for sharing.
Edit/Additional
Source: WSJ March 9 2017, Author: James Mackintosh, Title: "This Crazy, Expensive Stock Market Is for Speculators, Not Investors" https://www.wsj.com/articles/this-crazy-expensive-stock-market-is-for-speculators-not-investors-1489078334?tesla=y
Excerpt: Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria—Sir John Templeton. Eight years ago today, investors were more pessimistic than they had been in many decades. Stocks had crashed back to where they stood almost 13 years earlier, banks were failing and comparisons to the Great Depression of the 1930s were routine. It was a great time to buy."
Re: James Makintosh http://topics.wsj.com/person/M/james-mackintosh/8338
(I made a couple minor corrections to original summary based on a second listening.)

Those are nice Kiplinger tables (data from M*). Be careful with the top figures though, because funds often have multiple share classes.
For example, it says the top 3 year performer was DSENX, but DSEEX performed about 1/4% better. That's as one would expect since the I class shares have no 12b-1 fee. (I checked to make sure that DSEEX was also around for at least three years as of 2/28/17.)
Online, M* only goes back 15 years, but with that in mind, the top 15 year performers are (as of 3/10/17):
OSMAX 14.71% (foreign small/mid)
PHSZX 14.60% (health)
SHSSX 14.55% (health)
PRMTX 14.53% (communications) - converted from CEF New Age Media 7/28/97 (> 15 years ago)
ESMAX 14.44% (Europe)
CGMRX 14.27% (real estate)
BRUFX 14.21 (allocation 50%-70%)
INPIX 14.14% (trading - leveraged equity)
To address the question about the next 20 years, the most obvious answer is: your guess is as good as mine. FWIW, my guess is a bit south of 8%. Look at Ted's 20 year top LC performers. Domestically, around 11-12%, internationally 7%-8%.
Rate of population growth is declining quickly (might result in slower demand/profit growth). Unlike the first industrial revolution that increased both production capability and demand (hiring workers), the new revolution in machines (both service and manufacturing) seem to improve primarily just the production side of the equation.
Just a couple of random thoughts. Not sure how it will really affect long term profits (which is supposed to be what drives capital gains).

Thanks, Ted. 10 years is too short for what I'm asking about. Looks like the best they have for a 20 year period is Vanguard Capital Opportunity at 12.9%.
@Junkster, what I was intending by using the word diversified was to exclude those funds.

Sold DLRFX in my IRA.
Took partial gains in lot of my Artisan holdings.
Bought some American funds.

We interpret charts based on what we wish should happen in the markets. Now, there is nothing wrong with that.
It's one thing for me to get paranoid about an unfavorable MACD crossover if I'm mulling taking gains in one of my holdings. I can convince myself if I sell and the security then goes up, at least I "acted" in the present. Similarly if I was looking to buy a security and then I can use a positive MACD crossover (among other things) to decide I need to buy it. Once again, if the security starts plummeting at least I did my ANALysis.
What is NOT okay, is to write a BS article every other week trying to predict the direction of the market based on a chart and get paid for it. Because there is no personal money at stake in doing that. It is just utter nonsense, and is THE reason investor returns do not match fund returns. These experts are making money and they don't even have to invest it because they get a consistent "return" for every such article they publish while investors use real money when reacting to these articles.
Let's all agree to not perpetuate this criminal enterprise.

I will also note that fees always have a negative impact on investor returns. ... Mutual fund managers never have a losing year when their funds have negative years, the investor does. ER is paid regardless as to whether the investor subtract the fee from gains or adds the fee to losses.

Morningstar: "Zero or negative expense ratios are rare but not unprecedented." The article contains examples and links. The ones I had in mind were the Bridgeway funds the article leads with. They are especially relevant as they have performance adjustments that can make fund expenses go negative. The fund managers most definitely had a losing year.
Since the article is old, and some of those links are dead, I'll help out a little. The Elon Musk backed funds referenced are also described in this Bloomberg article.

Vangaurd has a nice interactive chart that illustrates the impact Expense Ratio (ER) fees have on "lost return".
By sliding the expected return control closer to the left (simulating a low return environment where CAPE is historically high) fees grab proportionally more of the return that the investor keeps.
I will also note that fees always have a negative impact on investor returns. What the chart fails to shown is a negative returns scenario and the additive effect ERs have on negative returns. Investors deal with negative risk while also absorbing the negative impact of fees during down markets. Mutual fund managers never have a losing year when their funds have negative years, the investor does. ER is paid regardless as to whether the investor subtract the fee from gains or adds the fee to losses.
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost

@expatsp, it's because they're not actually rotating on a monthly basis. They own swaps which are based on the actual group of four sectors that the index is investing in. Of course those swaps do have a time period associated with them and that means at some point they have to recognize gains and/or losses, but it's nothing like if they were actually rotating each month. At this point M* says their cap gains exposure is a little over 12% and that makes rough sense in terms of the unrealized gains they had in their December SEC filing. Of course they also have to distribute all the income from the bond portfolio so you'd think there will be an ongoing tax bill but hopefully they structure their swaps so they end up with long-term gains on most of the gains. I guess the interesting question might be how those swaps are treated. If you trade futures contracts then you mark to market and paying taxes on the gains and/or losses regardless of whether they're technically realized or not. I can't remember the specific percentage but the IRS just defines that any gains are 60/40 long term/short term, or something along those lines. If swaps are treated the same then the impact would be different for sure and I think it would most likely be worse.

@hank, as of the end of January he had 12.7% in below investment grade bonds and 6.3% in unrated bonds. While that clearly doesn't have to mean high yield in every case I guess its a decent estimate and it seems like he's not pushing the envelope in reaching for yield. Unfortunately the SEC doesn't require credit quality to be broken out in the quarterly schedule of holdings so you can't find out the history or what he's done in different environments without finding someone who's saved all the historical fact sheets or making your own judgments and trying to add things up manually based on the SEC filings (no fun!).
I think @davidrmoran has a good question about the impact of rotating. Even if the fund gets caught with it's pants down one month it gets another chance the following month. If the cheap sector with the least momentum takes off one month then the fund would own it the following month, unless the other cheap sectors took off as well (good for the fund) or this one sector all of a sudden wasn't one of the 5 cheapest anymore. That's all possible and it might even be fair to assume it will happen at some point, but it also seems reasonable to assume it won't happen all the time.
The fund could also run the risk of chasing its tail or being whipsawed and that's a common risk associated with mechanical strategies based on momentum. I think its worth paying attention to even though its not clear to me that you'd be able to identify the type of market that would cause those problems in order to get out or reduce for a while, nor do I think it's easy to figure out when things have changed and it's time to get back in before you give away enough gains to make the whole effort questionable.
I did look at monthly returns for DSENX (and the results could be slightly different than DSEEX but this will be more conservative) and the fund trailed the S&P 500 in 13 of its 40 months in existence so far, or roughly 1/3rd of the time. It managed to trail the S&P for 3 months in a row once and 7 of the times it trailed were negative months for the S&P out of 13 negative months for the S&P. Aside from the fact that 40 months isn't enough for any real judgments even the data itself doesn't seem to lead to any big conclusions about when you might expect the fund to do worse. Maybe you could say the fund wins a higher percentage of the time when the S&P is positive but it would be useful to see how the fund performs during an extended negative period for the S&P before considering whether its reasonable to have some expectations. If nothing else, though, reevaluating the sectors to invest in each month doesn't seem to have hurt and may have helped to keep the periods of losing to the S&P short.

Frankly I found it to be a bit mumbo jumbo. I did not come away with any conclusion as to whether I should buy low volatility funds NOW or not. If volatility is low today it can only go up and I think the author is saying this needs to happen for these funds to do well.
Other than that he is making argument people chase performance and then bail when fund does not perform. Err, that's true of any fund class. And if these funds have done slightly worse than the index, I don't see how they have "not delivered on the promise". It is also implying to me most investors are dumb since they are selling these funds because it is not as if they are bailing because of bad performance, and then why exactly is not clear to me (or I guess I'm just not smart enough).
I own VMVFX and is one of the few funds I call "holds". Instead of buying BMO low volatility funds I discovered through my ANALysis they were simply buying low volatility stocks so I bought Consumer Staples and Utility Funds as trades (sector funds will never we long term holds for me). Seems to me I should get out of these funds since I'm sitting on gains.
Moral 1: There 3 kinds of lies. Lies, Damn Lies and Statistics.
Moral 2: Statistics is like a bikini. What it reveals is interesting, but what it conceals is vital.