Mark, you can use any moderately strong steel to suit the purpose. 4340 is a good all around steel for many tool holding issues, but why are you making a tool when you can have a tool on your desk tomorrow from McMaster-Carr or MSC?
If you are looking for a speical holder you can go outside of the common supply houses and find something more to your liking. Remember that a milling tool holder also locates a tool in the center of the spindle. Is your toolroom that good that they can make this type of tool with very low (.0002") axial runout?
I am lucky with a full staff of toolmakers and tool grinders who can work to .0001" on a daily basis but few have this resouce avaialble. When I have to have the tool room make a tool it is at a rate of over $75/hr, so if I need a special tool I will get one that is close to the form I want and have it modified.