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While there is no 'gain' to report, there is still $5000 (or whatever she contributed) that has not been taxed. When she converts now, it will be considered taxable income of the amount converted, which will be taxed as income either 50% in 2011 and 50% in 2012, or if she prefers, 100% of the income in 2010. (She needs to look at the income tax rate changes that will occur in 2011 to see if she thinks she will be affected.)

Yes, of course, I should have seen that the 5K contribution would be taxed on the conversion. Thanks much!

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