Here's how I create the algorithm in my security token.

I first get a regular Symmetric algorithm

//algorithmName is a string representing the..uh...algorithm ("Rijndael"
for aes)
SymmetricAlgorithm alg = SymmetricAlgorithm.Create(algorithmName);
alg.KeySize = key.Length * 8;
alg.Key = key;
alg.IV = iv;

if you are GENERATING the key/iv, call GenerateKey(), GenerateIV() on the
SymmetricAlgorithm

Then on your Custom token class (mine supports AES128/192/256 and 3des, depending
on client/server negotiation)

public override KeyAlgorithm Key
{
get
{
if (m_KeyAlgorithm != null) return m_KeyAlgorithm;

if (this.m_SymmetricAlgorithm is Rijndael)
{
    switch(this.m_SymmetricAlgorithm.KeySize)
    {
        case 128:
            this.m_KeyAlgorithm = new AES128((Rijndael)this.m_SymmetricAlgorithm);
            break;
        case 192:
            this.m_KeyAlgorithm = new AES192((Rijndael)this.m_SymmetricAlgorithm);
            break;
        case 256:
            this.m_KeyAlgorithm = new AES256((Rijndael)m_SymmetricAlgorithm);
            break;
        default:
            throw(new InvalidOperationException("" + this.m_SymmetricAlgorithm.KeySize
+ " is not a valid key length"));
            break;
    }
}
else if (this.m_SymmetricAlgorithm is System.Security.Cryptography.TripleDES)

{
    this.m_KeyAlgorithm = new Microsoft.Web.Services2.Security.Cryptography.TripleDES(this.m_SymmetricAlgorithm);
}
return this.m_KeyAlgorithm;
}
}