Can a 10 year variable annuity with 5 year penalties be cashed out after 5 years without penalty?

You need to take a look at the surrender charges your particular VA contract.

Variable annuities come with what is referred to as surrender fees or early withdrawal charges.

A surrender charge schedule (or surrender fee schedule) lists the percentage that would be deducted from the purchase amount or premium.

The surrender fee is typically a sliding scale or schedule that decreases by a certain amount each year.

For example, a VA may have surrender charges that start at 5 percent in year 1 and decrease 1 percent per year through year 5.  As a result, a $100,000 premium or purchase amount would have a 4 percent early withdrawal penalty applied ($4,000) if the VA were "cashed out" in the second year.

In this hypothetical case, surrender fees would no longer be applicable after year 5.

It sounds like your VA might have a 5 year surrender charge schedule.  You should look at the contract to confirm as this is a relative short time frame for a surrender schedule.  

You should also look at the contract to make sure there are no other penalties that might apply for you or your client beyond year 5.