William Breault said shipping Tsarnaev's body to Kyrgyzstan, or Russia's Dagestan region where his parents live, costs $3,000 to $7,000, The (Worcester) Telegram and Gazette reported.
"I don't look at it as I'm helping his family," Breault said before formally announcing the fund Monday. "I look at it as I'm helping the citizens of Boston, Worcester and this state move on from this problem."
Breault said he has contacted Rep. James P. McGovern, D-Mass., asking him to contact Secretary of State John Kerry about the issue.
Tsarnaev, 26, and his 19-year-old brother, Dzhokhar, are accused of detonating two bombs at the Boston Marathon finish line April 15, killing three people and wounding hundreds of others. The brothers also are accused of killing Massachusetts Institute of Technology campus police officer Sean Collier.
Tamerlan Tsarnaev was killed in a shootout early April 19. His brother was captured in Watertown, Mass., later that day following a massive manhunt. The younger Tsarnaev is facing several charges in federal court.
The older brother's body is at Graham Putnam & Mahoney Funeral Parlors. Owner Peter Stefan said he had been been unable to find a cemetery willing to accept the body.
"We don't want him buried here in the city," Breault said.
Protesters have demonstrated outside the funeral home since Friday, The Telegram and Gazette said.
"Why should we accept somebody who is accused of a terrorist act?" Breault said. "It is unacceptable. The spotlight being put on this is wrong. We become the victims now."
Breault said he didn't think he'd have any problems raising the money. If the fund takes in more than is needed, he said, it would be donated to Boston's One Fund, established "to help the people most affected" by the marathon bombings.