my wife seperated from job 11/2017 cashed out 401k due to that separation 1 /2018 she turned 55 7/2018 do we have to pay the 10% early withdrawal penalty
Based on what you're stating, this income doesn't appear to qualify for any of the exceptions to the 10% early withdrawal penalty.
Please see the TurboTax article "What You Need to Know About 401(K) Early Distributions and Taxes" and the TurboTax FAQ "What are the exceptions to the penalty for an early withdrawal from my 401(k)?" below for additional information.
The IRS article Retirement Topics - Exceptions to Tax on Early Distributions is also helpful in understanding this issue.