Preheat oven to 400 degrees. Cream together the butter, 1/2 cup powdered sugar and vanilla. Slowly add the flour, nutmeg, and salt and mix just until combined. Stir in the nuts.
Use a 1-inch scoop to portion into balls and round them smooth between your hands. Bake 10-12 minutes, until cookies are set but not browned.
While the cookies are baking, place the remaining cup of powdered sugar in a small bowl. Let the cookies cool on the tray for a minute or two and then roll the warm cookies in powdered sugar and set on a cooling rack.
Once cool, roll them once or twice more in powdered sugar. Store in an airtight container.