01 - Whisk warm milk and 1 tablespoon sugar in a small bowl. Sprinkle yeast over the top and let stand until foamy, about 5–10 minutes.
02 - Combine flour, remaining sugar, salt, and nutmeg in a large bowl. Add melted butter, eggs, vanilla, lemon zest, and yeast mixture. Mix until a sticky dough forms.
03 - Knead dough by hand or mixer with dough hook for 8–10 minutes until smooth and elastic. Place in a greased bowl, cover, and let rise in a warm place until doubled, about 1–1.5 hours.
04 - Beat cream cheese, powdered sugar, and vanilla until smooth and creamy while dough rises.
05 - Punch down risen dough and roll into a 10x20 inch rectangle on a lightly floured surface. Spread cream cheese filling along one long edge, leaving a 1-inch border. Roll up tightly jelly-roll style, pinch seam to seal, then shape into a ring pinching ends together.
06 - Transfer to a parchment-lined baking sheet seam side down. Cover and let rise until puffy, about 45–60 minutes.
07 - Preheat oven to 350°F. Bake for 25–30 minutes until golden brown. Cool completely on a wire rack.
08 - Whisk powdered sugar, milk, and vanilla until smooth and pourable. Drizzle over cooled cake and immediately sprinkle with colored sugars in alternating sections.